Question

A 30-year maturity bond making annual coupon payments with a coupon rate of 10.2% has duration of 11.03 years and convexity of 176.83. The bond currently sells at a yield to maturity of 9%.

a. Find the price of the bond if its yield to maturity falls to 8%.

b. What price would be predicted by the duration rule?

c. What price would be predicted by the duration-with-convexity rule?

d-1. What is the percent error for each rule?

d-2. What do you conclude about the accuracy of the two rules?

e-1. Find the price of the bond if its yield to maturity increases to 10%.

e-2. What price would be predicted by the duration rule?

e-3. What price would be predicted by the duration-with-convexity rule?

e-4. What is the percent error for each rule?

e-5. Are your conclusions about the accuracy of the two rules consistent with parts (a) – (d)?

Answer #1

A 30-year maturity bond making annual coupon payments with a
coupon rate of 16.0% has duration of 10.55 years and convexity of
161.7. The bond currently sells at a yield to maturity of 9%. a.
Find the price of the bond if its yield to maturity falls to 8%.
(Do not round intermediate calculations. Round your answer to 2
decimal places.) Price of the bond $ b. What price would be
predicted by the duration rule? (Do not round intermediate...

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%...

You have a 25-year
maturity, 10.2% coupon, 10.2% yield bond with a duration of 10
years and a convexity of 135.7. If the interest rate were to fall
127 basis points, your predicted new price for the bond (including
convexity) is _________.

A 30-year bond making annual payments has a coupon rate of 12%,a
duration of 11.54years, and convexity of 192.4.The bond is
currently selling at a yield to maturity of 8%. Use the
duration-with -convexity approximation to predict the new price of
the bond iftheyield to maturitydeclines from 8% to 7%.Assume a
facevalue of 1000.

(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?

A 4 year maturity bond making annual coupon payments with a
coupon of 8% has a duration of 3.607 years and a convexity of
16.08. The bond currently sells at a yield of 4%. What is the
actual price of the bond if the YTM immediately increases to 6%?
Round you answer to the nearest penny. Answer:

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?

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

You have a 25-year maturity, 10.1% coupon, 10.1% yield bond with
a duration of 10 years and a convexity of 135.6. If the interest
rate were to fall 126 basis points, your predicted new price for
the bond (including convexity) is _________.
a.
$1,114.40
b.
$1,103.64
c.
$1,090.83
d.
$1,125.20

Suppose that you have a 20-year maturity, 12% coupon, 12% yield
bond with a duration of 11 years and a convexity of 135.5. If the
interest rate were to fall 125 basis points, your predicted new
price for the bond (including convexity) is ________. This bond
sells at par, which means the current price equals its face value,
$1,000.
$1,104.56
$1,113.41
$1,124.22
$1,133.35

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