You find a bond with 25 years until maturity that has a coupon rate of 10.0...

You find a bond with 25 years until maturity that has a coupon rate of 10.0 percent and a yield to maturity of 8.5 percent. Suppose the yield to maturity on the bond increases by 0.25 percent.

a. What is the new price of the bond using duration and using the bond pricing formula? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

estimate price

actual price

b. Now suppose the original yield to maturity is increased by 1 percent. What is the new price of the bond?

estimate price

actual price

Solutions

Expert Solution

Part (a): Reduction in YTM by 0.25%:

Estimate price= $1,184.74

Actual price= $1,182.89

Part (b): Increase in YTM by 1%:

Estimate price= $1,028.62

Actual price= $1,047.19

Detailed calculation as follows:

jeff jeffy answered 1 year ago

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