Question
As a financial analyst at Wells Fargo, you are analyzing how the change in yield impacts the bond price. A bond has a duration of
As a financial analyst at Wells Fargo, you are analyzing how the change in yield impacts the bond price. A bond has a duration of 11 years, a yield of 10%, a convexity of 140, and a market price of $1,000. Suppose the market yield increases by 60 basis points.
What is the percentage change in bond's price by the duration only formula? (sample answer: 2.25% or -2.25%)
What is the bond price after the yield decline predicted by the duration only formula? (sample answer: $1050.65)
What is the percentage change in the bond's price predicted by the duration with convexity formula? (sample answer: 2.25% or -2.25%)
What is the bond price after the yield decline predicted by the duration with convexity formula? (sample answer: $1050.65)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started