Question
Consider a 1.9 percent coupon Procter & Gamble bond. The bonds 1.9 percent annual coupon is paid semiannually. When the bond was issued earlier this
Consider a 1.9 percent coupon Procter & Gamble bond. The bonds 1.9 percent annual coupon is paid semiannually. When the bond was issued earlier this year it had a yield of 1.93% and a price of 99.86% of par ($99.86 if the par value is $100.00). The bond will mature on 2/1/2027. Please assume that the bonds coupon accrual follows the 30/360 day count convention.
A. By 2/23/2022 the bonds clean price was $97.76. What was the new yield at that point in time (for this calculation assume a settlement date of 2/23/2022). (5 points)
B. What was the bonds Macaulay duration at that point? (5 points)
C. What was the bonds modified duration at that point? (5 points)
D. Suppose that yields then rose instantly by another 30 basis points (0.30 percentage points). What (approximately, using the duration approximation) would the new clean price after that yield change? (5 points)
E. Suppose that you had purchased this bond when its clean price was $97.76, and you had financed the purchase of this bond by borrowing 70 percent of this value at that point
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