Question
A 30-year maturity bond making annual coupon payments with a coupon rate of 7% has duration of 15.16 years and convexity of 315.56. The bond
A 30-year maturity bond making annual coupon payments with a coupon rate of 7% has duration of 15.16 years and convexity of 315.56. The bond currently sells at a yield to maturity of 5%.
b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.
Predicted new price (duration rule) ____
c. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Predicted new price (duration with convexity rule) ____
d-1. What is the percent error for each rule? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Duration rule duration with convexity rule
Percentage Error _____% ____%
e-1. Find the price of the bond if its yield to maturity increases to 6%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Price of the bond ___
e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Predicted new price (duration rule) ____
e-3. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Predicted new price (duration with convexity rule) ____
e-4. What is the percent error for each rule? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Duration rule duration with convexity rule
Percentage Error _____% ____%
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