Question
In: Finance
3) A bond has four years to maturity, an 8% annual coupon and a par value...
3) A bond has four years to maturity, an 8% annual coupon and a par value of $100. The bond pays a continuously compounded interest of 5%.
a. What would the actual percentage change in the price of the bond be if the interest rate goes up from 5% to 6%?
b. What would be the percentage change in the price of the bond implied by the duration approximation?
c. What would be the percentage change in the price of the bond implied by the duration plus convexity approximation?
d. Why does adding the convexity term to the approximation improve it?
(PLEASE EXPLAIN THE CALCULATION)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
A bond has four years to maturity, an 8% annual coupon and a par value of...
A bond has four years to maturity, an 8% annual coupon and a par
value of $100. The bond pays a continuously compounded interest of
5%.
a. What would the actual percentage change in the price of the
bond be if the interest rate goes up from 5% to 6%?
b. What would be the percentage change in the price of the bond
implied by the duration approximation?
c. What would be the percentage change in the price of the...
A bond has four years to maturity, an 8% annual coupon and a par value of...
A bond has four years to maturity, an 8% annual coupon and a par
value of $100. The bond pays a continuously compounded interest of
5%. a. What would the actual percentage change in the price of the
bond be if the interest rate goes up from 5% to 6%? b. What would
be the percentage change in the price of the bond implied by the
duration approximation? c. What would be the percentage change in
the price of the...
A bond has four years to maturity, an 8% annual coupon and a par value of...
A bond has four years to maturity, an 8% annual coupon and a par
value of $100. The bond pays a continuously compounded interest of
5%.
a. What would the actual percentage change in the price of the
bond be if the interest rate goes up from 5% to 6%?
b. What would be the percentage change in the price of the bond
implied by the duration approximation?
c. What would be the percentage change in the price of the...
A bond has 3 years to maturity, a 10% annual coupon and a par value of...
A bond has 3 years to maturity, a 10% annual coupon and a par
value of $100. The bond pays a continuously compounded interest of
7%. Suppose the interest rate goes down to 6%. What would be the
percentage change in the price of the bond implied by the duration
plus convexity approximation?
A bond has 3 years to maturity, a 10% annual coupon and a par value of...
A bond has 3 years to maturity, a 10% annual coupon and a par
value of $100. The bond
pays a continuously compounded interest of 7%. Suppose the interest
rate goes down to 6%. What
would be the percentage change in the price of the bond implied by
the duration plus convexity
approximation?
A bond has a $1,000 par value, 12 years to maturity, and an 8% annual coupon...
A bond has a $1,000 par value, 12 years to maturity, and an 8%
annual coupon and sells for $980.
a. What is its yield to maturity (YTM)? Round your answer to two
decimal places.
b. Assume that the yield to maturity remains constant for the
next three years. What will the price be 3 years from today? Do not
round intermediate calculations. Round your answer to the nearest
cent.
bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and...
bond has a $1,000 par value, 10 years to maturity, and a 8%
annual coupon and sells for $980.
What is its yield to maturity (YTM)? Round your answer to two
decimal places.
b)Assume that the yield to maturity remains constant for the
next 3 years. What will the price be 3 years from today? Do not
round intermediate calculations. Round your answer to the nearest
cent
2)Nesmith Corporation's outstanding bonds have a $1,000 par
value, a 8% semiannual coupon,...
A bond has a $1,000 par value, 15 years to maturity, and an 8% annual coupon...
A bond has a $1,000 par value, 15 years to maturity, and an 8%
annual coupon and sells for $1,080. What is its yield to maturity
(YTM)? Round your answer to two decimal places. % Assume that the
yield to maturity remains constant for the next three years. What
will the price be 3 years from today? Do not round intermediate
calculations. Round your answer to the nearest cent. $
A bond has a $1,000 par value, 12 years to maturity, and a 8% annual coupon...
A bond has a $1,000 par value, 12 years to maturity, and a 8%
annual coupon and sells for $980.
What is its yield to maturity (YTM)? Round your answer to two
decimal places.
Assume that the yield to maturity remains constant for the next
5 years. What will the price be 5 years from today? Do not round
intermediate calculations. Round your answer to the nearest
cent.
A bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon...
A bond has a $1,000 par value, 10 years to maturity, and a 8%
annual coupon and sells for $980.
What is its yield to maturity (YTM)? Round your answer to two
decimal places.
%
Assume that the yield to maturity remains constant for the next
5 years. What will the price be 5 years from today? Do not round
intermediate calculations. Round your answer to the nearest
cent.
INTEREST RATE SENSITIVITY
An investor purchased the following 5 bonds. Each...
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