Question

A bond has a duration of 6 years. The coupon rate on the bond is 3.5%....

A bond has a duration of 6 years. The coupon rate on the bond is 3.5%. Coupons are paid semi-annually. The bond trades at a price in dollars of 1,050. If market yields decline 75 bps, what is the best estimate of the new bond price? You can ignore convexity.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

This question can be solved with the help of a financial calculator and following key strokes :-

Sokving for yield before yield decline

N = 6 × 2 = 12 ( semi annual coupon)

Pmt = 1.75 % × 1000 = 17.5

FV = 1000

PV = -1050

Compute I/Y = 2.5947 % (annualized)

Let the yield decline 0.75 bps,

2.5947 - 0.75 ,= 1.8447 = i/Y

Calculating new price now

FV = 1000

PMT = 17.5

N = 12

I/Y = 1.8447

Compute PV = 989.88

Approx price = 989.88

Took real efforts

Please press the like button

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have a 25-year maturity, 10.4% coupon paid semi-annually, 10.4% YTM bond with a duration of...
You have a 25-year maturity, 10.4% coupon paid semi-annually, 10.4% YTM bond with a duration of 10 years and a convexity of 113.9976. If the interest rate were to fall 129 bps: a) Show the total change in the bond price, Δ B, as a result of the decline in yields. b) Show the bond price change due to duration, Bd. c) Show the bond price change due to convexity, Bc. d) Verify the accuracy of your responses by showing:...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond sells at par value $1000 and has a convexity of 9.3. The duration of the bond is 2.78. If the interest rate increases from 8% to 9.5%, what price would be predicted by the duration-with-convexity rule?
A 30-year maturity bond making annual coupon payments with a coupon rate of 7% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 7% has duration of 15.16 years and convexity of 315.56. The bond currently sells at a yield to maturity of 5%.     a. Find the price of the bond if its yield to maturity falls to 4% or rises to 6%. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)       Yield to maturity of 4% $       Yield to maturity of 6%...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond sells at par value $1000 and has a convexity of 9.3. The duration of the bond is 2.78. If the interest rate increases from 8% to 9.5%, what price would be predicted by the duration-with-convexity rule? 963.43 965.35 962.43 964.42
What is the duration of a bond that has a 6% coupon paid semi-annually and matures...
What is the duration of a bond that has a 6% coupon paid semi-annually and matures in exactly 3 years if the discount rate is currently 10%? Use Macaully’s Duration.
2.8 Calculate the duration of a 6 percent, $1,000 par bond maturing in three years if...
2.8 Calculate the duration of a 6 percent, $1,000 par bond maturing in three years if the yield to maturity is 10 percent and interest is paid semiannually. b. (3 points) Calculate the modified duration for this bond. 2.9 Calculate the convexity of the bond in 2.8. 2.10 Given the results in 2.8 and 2.9, if the price of the bond before yields changed was $898.49, what is the resulting price taking into account both the effect of duration and...
A semi-annual coupon bond with 2 years to maturity and 8% per annum coupon rate has...
A semi-annual coupon bond with 2 years to maturity and 8% per annum coupon rate has a face value of $1,000 with a yield to maturity of 12% per annum (compounded semi-annually). Using the bond’s modified duration, estimate the new bond price when the yield to maturity immediately changes from 12% per annum to 8% per annum. Select one: a. 66.27 dollars.   b. 996.97 dollars. c. 930.70 dollars. d. 864.43 dollars. e. None of the statements is true.
A corporate bond has 2 years to maturity, a coupon rate of 8%, a face value...
A corporate bond has 2 years to maturity, a coupon rate of 8%, a face value of $1,000 and pays coupons semiannually. The market interest rate for similar bonds is 9.5%. Duration is 1.886 years, NPV is 973.25. a. If yields fall by 0.8 percentage points, what is the new expected bond price based on its duration (in $)? b. What is the actual bond price after the change in yields (in $)? c. What is the difference between the...
An 6% annual coupon bond with (face value = 3,000) currently trades at par. Its Macaulay...
An 6% annual coupon bond with (face value = 3,000) currently trades at par. Its Macaulay duration is 5.16 in years and its convexity is 56.34 in years. Suppose yield goes from 5.88% to 2.42% one day. Calculate the approximate dollar change in price using both duration and convexity. Assume annual compounding. Round your answer to 2 decimal places. If your answer is a price decline, then include the negative sign in your answer.
You own an annual coupon bond with a duration of 11.11 years and a convexity of...
You own an annual coupon bond with a duration of 11.11 years and a convexity of 128.62. The bond is currently priced at $805.76 and the yield to maturity is currently 6%. However, you expect the yield to maturity to increase to 8%. What will be the new price of the bond?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT