A 10-year maturity bond making annual coupon payments with a coupon rate of 5% and currently selling at a yield to maturity of 4% has a convexity of 145.4. a. Compute the Modified Duration of the bond. b. Based on the information above, compute the approximated new price using the Duration & Convexity adjustment if the yield to maturity increases by 75 basis points. c. What is the percentage error?
A 10-year maturity bond making annual coupon payments with a coupon rate of 5% and currently selling at a yield to maturity of 4% has a convexity of 145.4. a. Compute the Modified Duration of the bond. b. Based on the information above, compute the approximated new price using the Duration & Convexity adjustment if the yield to maturity increases by 75 basis points. c. What is the percentage error?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...
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A 10-year maturity bond making annual coupon payments with a coupon rate of 5% and
currently selling at a yield to maturity of 4% has a convexity of 145.4.
a. Compute the Modified Duration of the bond.
b. Based on the information above, compute the approximated new price using the Duration
& Convexity adjustment if the yield to maturity increases by 75 basis points.
c. What is the percentage error?
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