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35. MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent coupon, $1,000 bonds that sell at par a. What
35. MLK Bank has an asset portfolio 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+ 1-0.10 percent? What will be the new prices if market yields change immediately by +I- 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). 36. Estimate the convexity for each of the following three bonds, all of which trade at a yield to maturity of 8 percent and have face values of $1,000. A 7-year, zero-coupon bond. A 7-year, 10 percent annual coupon bond. A 10-year, 10 percent annual coupon bond that has a duration value of 6.994 years (i.e., approximately 7 years) Rank the bonds in terms of convexity and express the convexity relationship between zeros and coupon bonds in terms of maturity and duration equivalencies
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