Question

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 190.8. The bond currently sells at a yield to maturity of 8%.

Required:
(a)	Find the price of the bond if its yield to maturity falls to 7% or rises to 9%. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Yield to maturity of 7%	$
Yield to maturity of 9%	$

(b)	What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule?(Round your answers to 2 decimal places. Omit the "$" sign in your response.)

	Duration rule	Duration-with- convexity rule
YTM falls to 7%	$	$
YTM increases to 9%	$	$

(c)	What is the percent error for each rule? (Round your answers to 3 decimal places. Omit the "%" sign in your response.)

	Duration rule	Duration-with- convexity rule
Percent error for 7% YTM	%	%
Percent error for 9% YTM	%	%

(d)	What do you conclude about the accuracy of the two rules?

         (Click to select)   The duration rule provides more accurate approximations to the actual change in price.   The duration-with-convexity rule provides more accurate approximations to the actual change in price.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE