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Consider a 30-year 3% coupon bond with semi-annual coupon payments and a face value of $1,000. Currently, the price of the bond is $584.87;
Consider a 30-year 3% coupon bond with semi-annual coupon payments and a face value of $1,000. Currently, the price of the bond is $584.87; duration of the bond is 16.5 years and convexity is 378.6 year. Calculate the following for this bond: (30 points) a) Yield-to-maturity (YTM). b) Modified duration. c) Using modified duration only, estimate the percentage change in bond price when YTM goes DOWN by 2%. d) Using modified duration AND convexity, estimate the percentage change in bond price when YTM goes DOWN by 2%. e) Now calculate the actual price of the bond with the YTM decreasing by 2%. What is the actual percentage change in bond value? f) Now compare your answers in part c) and d): which method leads to a more accurate estimate on the bond's value change?
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To calculate the requested values lets use the given information and formulas related to bond pricing and duration a Yieldtomaturity YTM The yieldtomaturity can be calculated by trial and error or by ...
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Financial Management for Public Health and Not for Profit Organizations
Authors: Steven A. Finkler, Thad Calabrese
4th edition
133060411, 132805669, 9780133060416, 978-0132805667
