Question
A$100 000 bond has 3 years to maturity, and 8% p.a. coupon rate (paid annually). The current yield rate is 10%. Required: a) What is
A$100 000 bond has 3 years to maturity, and 8% p.a. coupon rate (paid annually). The current yield rate is 10%.
Required:
a) What is the duration of this bond?
b) What is the price of this bond?
c) If the current yield is decreased by 100 basis points,
1) What is the percentage change in bond price using the duration approach?
2) What is the price of this bond with this new yield rate?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a The duration of the bond can be calculated using the formula Duration 1 yn x t x 1 yn 1 yn x 1 yn ...
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Step: 2
Step: 3
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Essentials Of Corporate Finance
Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan
6th Edition
978-0073405131, 9780073405131
