Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a zero-coupon bond with $100 face value that matures in seven years and has a yield of 7%. i) What is the price when

Consider a zero-coupon bond with $100 face value that matures in seven years and has a yield of 7%.

i) What is the price when we assume that the (discrete) compounding frequency is semiannual?

ii) What is the bonds modified duration?

iii) Use the modified duration to find the approximate changes in price if the bond yield rises by 10, 20, 50, 100 and 200 basis points.

iv) evaluate the same bond price if rates changes by -200 bps, -100 -50 -10 -5 0 +5. +200 (bps: 1/10,000 % ie. 200 bps= 2% ) use dp/P approximation=-D (dr) then use convexity adjustment to correct the approximation error?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Value Investor's Handbook

Authors: Andrew P.C.

1st Edition

1098810449, 978-1098810443

More Books

Students also viewed these Finance questions