MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent coupon, $1,000

Question:

MLK Bank has an asset that consists of $100 million of 30-year, 8 percent coupon, $1,000 bonds that sell at par.
a. What will be the bonds’ new prices if market yields change immediately by ( 0.10 percent? What will be the new prices if market yields change immediately by ( 2.00 percent?
b. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule? What is the amount of error between the duration prediction and the actual market values?
c. Given that convexity is 212.4, what are the bond price predictions in each of the four cases using the duration plus convexity relationship? What is the amount of error in these predictions?
d. Diagram and label clearly the results in parts (a), (b) and (c). Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...