Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. On Aug. 22, 2017 Amazon.com issued a semiannual bond with coupon rate of 3.15% and maturity date of Aug. 22, 2027. The bond pays

1. On Aug. 22, 2017 Amazon.com issued a semiannual bond with coupon rate of 3.15% and maturity date of Aug. 22, 2027. The bond pays coupon on Feb. 22 and Aug. 22 every year. The current bond YTM is 0.96%. a. Please find bond duration (in years), modified duration (in years) and convexity (in years) on Aug. 22, 2020 right after the coupon is paid. (9 points) b. Assuming on Aug. 22, 2020, the yield to maturity decreases by 0.25%, based on the duration, how much should the bond price change? Based on both duration and convexity, how much should the bond price change? What is the actual price change? (6 points ) c. Following question b, if the yield to maturity decreases by another 0.25%, will the actual price change the same amount as in question b, more than the amount in question b or less than the amount in question b? Please explain without calculating the actual bond price. (3 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Mergers Acquisitions And Other Restructuring Activities

Authors: Donald DePamphilis

10th Edition

0128150750, 978-0128150757

More Books

Students also viewed these Finance questions