Question

In: Finance

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 calculations. Round your answer to 2 decimal places.) Predicted price $ c. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Predicted price $ d-1. What is the percent error for each rule? (Enter your answer as a positive value. Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.) Percent Error YTM Duration Rule Duration-with- Convexity Rule 10% % % d-2. What do you conclude about the accuracy of the two rules? The duration-with-convexity rule provides more accurate approximations to the actual change in price. The duration rule provides more accurate approximations to the actual change in price. e-1. Find the price of the bond if it's yield to maturity rises to 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of the bond $ e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Predicted price $ e-3. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Predicted price $ e-4. What is the percent error for each rule? (Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.) Percent Error YTM Duration Rule Duration-with- Convexity Rule 12% % % e-5. Are your conclusions about the accuracy of the two rules consistent with parts (a) – (d)? Yes No

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

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 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 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 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...
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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT