Question
Assume that the yield curve is flat at 5.7%. The bond has 3 years to maturity, and pays coupons annually. The face value of the
Assume that the yield curve is flat at 5.7%. The bond has 3 years to maturity, and pays coupons annually. The face value of the bond is $100, and the bond pays a 4.62% coupon rate. ______________________________________________________________________ (a) Compute the price of the bond. unanswered ______________________________________________________________________ (b) Compute the modified duration of the bond. unanswered ______________________________________________________________________ (c) Compute the convexity of the bond by applying the formula: CX=121Bd2Bdy2, where B is the bond price and y is the bond yield. unanswered ______________________________________________________________________ (d) Suppose there is a parallel shift in all interest rates by +2.55%. Compute the value of the bond price following the change in interest rates by applying the duration-based first-order approximation. unanswered ______________________________________________________________________ (e) Suppose there is a parallel interest rate shift in all interest rates by +2.55%. Compute the value of the bond price following the change in interest rates by applying the second-order approximation with both duration and convexity terms. unanswered ______________________________________________________________________ (f) Suppose there is a parallel shift in all interest rates by +2.55%. Compute the exact value of the bond price following the change in interest rates.
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