Question
A $1,000 face value bond has a coupon of 9% (paid annually) and will mature 16 years from today? A. Assume that the yield-to-maturity is
A $1,000 face value bond has a coupon of 9% (paid annually) and will mature 16 years from today?
A. Assume that the yield-to-maturity is 6%. What is the bonds: i. Duration ii. Modified Duration
B. Assume that the bonds yield-to-maturity immediately changes from 6% to 5.9% (the bond still has 16 years to maturity). i. Estimate the % change in the bonds price using modified duration ii. What is actual bond price (at YTM = 5.9%), and the % price change (from YTM = 6% to 5.9%)?
C. Assume that the bonds yield-to-maturity immediately changes from 6% to 5% (the bond still has 16 years to maturity). i. Estimate the % change in the bonds price using modified duration ii. What is actual bond price (at YTM = 5%), and the % price change (from YTM = 6%)? D. Why is the estimated % price change closer to the actual price change in Part B than it is in Part C? Be precise!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started