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MLK Bank has an asset portfolio that consists of $130 million of 15-year, 5.5 percent coupon,...

MLK Bank has an asset portfolio that consists of $130 million of 15-year, 5.5 percent coupon, $1,000 bonds with annual coupon payments that sell at par.

a-1. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent?
a-2. What will be the new prices if market yields change immediately by ± 2.00 percent?
b-1. The duration of these bonds is 10.5896 years. What are the predicted bond prices in each of the four cases using the duration rule?
b-2. What is the amount of error between the duration prediction and the actual market values?

Bonds new price:

A1

At +0.10%

At -0.10%

A2

At +2.0%

-2.0%

B1

At +0.10%

At -0.10%

At +2.0%

At -2.0%

Amount of Error: (round to two decimal points)

B2

At +0.10%

At -0.10%

At +2.0%

At -2.0%

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jeff jeffy answered 1 year ago
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