Question

Regarding a 3-year bond with 14 percent semi-annual coupon payments and with a current price to yield 12 per cent per annum.

1. Calculate duration of the bond.
2. What is the percentage of price change if interest rate increases to 12.15% per annum?

Please show working out.

Answer 1

a)duration bond

bond price when yield is 12%

yearly coupon rate is 14% half year coupon rate is 7%  

yearly yield is 12% , half year yield is 6%

2) percentage change in bond price when ytm increase to 12.15%

bond price when ytm is 12.15% is 1045.38

% change = (orginal price- change price)/original price

=(1049.17-1045.38)/1049.17

% change=0.36%

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