Question

In: Finance

you own a 15 - year 100 par bond. The coupon rate is an annual 9%...

you own a 15 - year 100 par bond. The coupon rate is an annual 9% payable annually. The price of the bond is 95.50

D. Calculate the approximate change in price of the bond if the yield rate increas by 0.5% using First Order Macaulay Approximation

E. Calculate the approximate change in price of the bond if the yield rate increase by 0.5% using First Order Modified Approximation

F. Calculate the exact change in price of the bond

Solutions

Expert Solution

coupon rate = 0.09

par value , M = 100

coupon value , C = 0.09*100 = 9

Price of bond , P = 95.50

YTM = (C + (M - P )/n)/(0.4*M+0.6*P) = (9 + ((100 - 95.50 )/15))/((0.4*100)+(0.6*95.5))

YTM = 0.095580678 or 9.55806785 or 9.56%

this is an approximate value of YTM

by adjusting for the difference in price , we get exact YTM = 0.095775 or 9.5775% or 9.58%

For Part D

For Part E

PART F


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