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Question 2 The regression equation of the yield of KC Company's 10-year bond (Y-axis) on the 10-year US Treasury benchmark's yield (X-axis) using month end
Question 2 The regression equation of the yield of KC Company's 10-year bond (Y-axis) on the 10-year US Treasury benchmark's yield (X-axis) using month end data from the past years is given below: Yieldc 0.54+ 1.22 x YieldTreasury where Yieldkc is the yield on the KC bond and the YieldTreasury is the yield on the US T bond. The modified duration on the 10-year US T-bond is 7.0 years and the modified duration on the KC bond is 6.93 years. (a) Compute the percentage price change of the 10-year US Treasury assuming a 50 basis point change in the yield on the 10-year US Treasury (5 marks) (b) Compute the percentage price change of the KC bond, using the regression equation above, assuming a 50 basis point change in the yield on the 10-year US Treasury (8 marks)
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