a. A 6% coupon bond paying interest annually has a modified duration of 10 years, sells for
Question:
a. A 6% coupon bond paying interest annually has a modified duration of 10 years, sells for
$800, and is priced at a yield to maturity of 8%. If the YTM increases to 9%, what is the predicted change in price based on the bond’s duration?
b. A 6% coupon bond with semiannual coupons has a convexity (in years) of 120, sells for 80%
of par, and is priced at a yield to maturity of 8%. If the YTM increases to 9.5%, what is the predicted contribution of convexity to the percentage change in price due to convexity?
c. A bond with annual coupon payments has a coupon rate of 8%, yield to maturity of 10%, and Macaulay’s duration of 9 years. What is the bond’s modified duration?
d. When interest rates decline, the duration of a 30-year bond selling at a premium:
i. Increases.
ii. Decreases.
iii. Remains the same.
iv. Increases at first, then declines.
e. If a bond manager swaps a bond for one that is identical in terms of coupon rate, maturity, and credit quality but offers a higher yield to maturity, the swap is:
i. A substitution swap.
ii. An interest rate anticipation swap.
iii. A tax swap.
iv. An intermarket spread swap.
f. Which bond has the longest duration?
i. 8-year-maturity, 6% coupon ii. 8-year-maturity, 11% coupon iii. 15-year-maturity, 6% coupon iv. 15-year-maturity, 11% coupon: P-963
Step by Step Answer:
ISE Investments
ISBN: 9781266085963
13th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus