Question

A five-year bond pays annual coupon payments of 10%. The face value of the bond is $1,000 and has a current market price of $1,079.85. The current yield to maturity is 8%. (15m) Calculate the Duration (D) of this bond by completing the table below. Show all working. Suppose that the interest rates increased by 75 basis points as of today. Calculate the percentage and dollar amount change in the price of the bond. Calculate the new price of the bond today due to the change in interest rate.

Answer #1

3. Suppose that you’re given a 8-year 7.2%-coupon bond with
$1,000 face value that pays the semi-annual coupon payments, the
bond price in the market is $886 per bond, answer the following
questions:
a) What is the yield to maturity? What is the idea of yield to
maturity? Explain the difference between your bond’s yield to
maturity versus the term structure of interest rates.
b) Suppose you are about to apply the immunization strategy for
the bond portfolio what is...

A 10-year, 7 percent coupon bond pays interest semiannually. The
bond has a face value of $1,000. What is the percentage change in
the price of this bond if the market yield to maturity rises to 6
percent from the current rate of 5.5 percent?

Consider a one-year maturity, $120,000 face value bond that pays
a 10 percent fixed coupon annually.
What is the price of the bond if market interest rates are 7
percent?
What is the price of the bond if market interest rates are 5
percent?
What is the percentage price change for the bond if interest
rates increase 70
basis points from the original 6 percent?

6. Consider a 10 year bond with face value $1,000 that pays a
6.8% coupon semi-annually and has a yield-to-maturity of 8.4%. What
is the approximate percentage change in the price of bond if
interest rates in the economy are expected to decrease by 0.60% per
year? Submit your answer as a percentage and round to two decimal
places. (Hint: What is the expected price of the bond before and
after the change in interest rates?)

A 13-year, 6 percent coupon bond pays interest semiannually. The
bond has a face value of $1,000. What is the percentage change in
the price of this bond if the market yield to maturity rises to 5.7
percent from the current rate of 5.5 percent?

for the following questions, use a 10 year coupon bond with a
face value $1500 coupon payments of 200 anually and an interest and
an interest rate of 9% for each of the following questions show the
equation in general form and then your answer
a. calculate the duration of the bond (using the formula)
b. Calculate the modified duration of the bond
c. Calculate the dollar change in price when interest rates
increase by 2% using duration
d. Calculate...

Calculate the duration of a two-year, $1,000 bond that pays an
annual coupon of 10 percent and trades at a yield of 14 percent.
What is the expected change in the price of the bond if interest
rates decline by 0.50 percent? (2 points)? (show all the work!)

(excel) Consider a 8% coupon bond
making annual coupon payments with 4 years until maturity
and a yield to maturity of 10%.
What is the modified duration of this bond?
If the market yield increases by 75 basis points, what is the
actual percentage change in the bond’s
price? [Actual, not approximation]
Given that this bond’s convexity is 14.13, what price would you
predict using the duration-with-convexity
approximation for this bond at this new yield?
What is the percentage error?

Consider a 12-year bond with face value $1,000 that pays an 8.6%
coupon semi-annually and has a yield-to-maturity of 7.7%. What is
the approximate percentage change in the price of bond if interest
rates in the economy are expected to decrease by 0.60% per year?
Submit your answer as a percentage and round to two decimal places.
(Hint: What is the expected price of the bond before and after the
change in interest rates?)

A 16-year, 4.5% coupon bond pays interest semiannually. The bond
has a face value of $1,000. What is the percentage change in the
price of this bond if the market yield to maturity rises to 5.7%
from the current rate of 5.5%?
PLEASE TRY TO BE A SIMPLE AS POSSIBLE, preferably using
excel!

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