Problem 3-40 (LG 3-4, LG 3-6)

MLK Bank has an asset portfolio that consists of $120 million of 15-year, 12 percent coupon, $1,000 bonds with annual coupon payments that sell at par. a-1. What will be the bonds new prices if market yields change immediately by 0.10 percent? a-2. What will be the new prices if market yields change immediately by 2.00 percent? b-1. The duration of these bonds is 7.6282 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values?