Question
A 15-year to maturity bond with a face value of $1000, coupon of 6%, paid annually, is priced at 97 (% of face value). Consider
A 15-year to maturity bond with a face value of $1000, coupon of 6%, paid annually, is priced at 97 (% of face value).
Consider a 20 basis point increase in yield to maturity. What is the percentage change in the price of the bond estimated by modified duration? What is the actual percentage change in the price of the bond? Consider a 200 basis point increase in yield to maturity. What is the percentage change in the price of the bond estimated by modified duration? What is the actual percentage change in the price of the bond? Vice versa, consider a 20 basis point decline in yield to maturity. What is the percentage change in the price of the bond estimated by modified duration? What is the actual percentage change in the price of the bond? Consider a 300 basis point decrease in yield to maturity. What is the percentage change in the price of the bond estimated by modified duration? What is the actual percentage change in the price of the bond?
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