Question

In: Finance

A 30-year maturity bond making annual coupon payments with a coupon rate of 11% has duration...

A 30-year maturity bond making annual coupon payments with a coupon rate of 11% has duration of 12.44 years and convexity of 221.07. The bond currently sells at a yield to maturity of 7%.

a. Find the price of the bond if its yield to maturity falls to 6%.

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 8%.

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)?

Solutions

Expert Solution


Related Solutions

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration...
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% $   ...
A 30-year maturity bond making annual coupon payments with a coupon rate of 15.0% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 15.0% has duration of 9.41 years and convexity of 129.3. The bond currently sells at a yield to maturity of 11%. a. Find the price of the bond if its yield to maturity falls to 10%. (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 12% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. Please find the price of the bond if its yield to maturity falls to 7% or rise to 9%. What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule? What is the percent error for each...
A 30-year maturity bond making annual coupon payments with a coupon rate of 10% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 10% has duration of 10.37 years and convexity of 157.28. The bond currently sells at a yield to maturity of 10%. a. Find the price of the bond if its yield to maturity falls to 9%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to...
A 30-year maturity bond making annual coupon payments with a coupon rate of 9.2% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 9.2% has duration of 10.46 years and convexity of 160.31. The bond currently sells at a yield to maturity of 10%. e-1. Find the price of the bond if its yield to maturity increases to 11%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to...
A 30-year maturity bond making annual coupon payments with a coupon rate of 8.2% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 8.2% has duration of 12.11 years and convexity of 211.01. The bond currently sells at a yield to maturity of 8%. a. Find the price of the bond if its yield to maturity falls to 7%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to...
A 30-year maturity bond making annual coupon payments with a coupon rate of 11.2% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 11.2% has duration of 11.63 years and convexity of 195.34. The bond currently sells at a yield to maturity of 8%. a. Find the price of the bond if its yield to maturity falls to 7%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to...
A 30-year maturity bond making annual coupon payments with a coupon rate of 7.2% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 7.2% has duration of 13.21 years and convexity of 247.25. The bond currently sells at a yield to maturity of 7%. a. Find the price of the bond if its yield to maturity falls to 6%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to...
A 30-year maturity bond making annual coupon payments with a coupon rate of 16.5% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 16.5% has duration of 11.19 years and convexity of 180.9. The bond currently sells at a yield to maturity of 8%. a. Find the price of the bond if its yield to maturity falls to 7%. (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 14.0% has duration...
A 30-year maturity bond making annual coupon payments with a coupon rate of 14.0% has duration of 10.04 years and convexity of 147.1. The bond currently sells at a yield to maturity of 10%. a. Find the price of the bond if its yield to maturity falls to 9%. (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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT