Question
Tesla Inc, USA recently tapped on the bond market for a 5-year bond. It pays an annual coupon of 7% p.a. for sovereign and institutional
Tesla Inc, USA recently tapped on the bond market for a 5-year bond. It pays an annual coupon of 7% p.a. for sovereign and institutional investors to diversify its funding base. The prevailing market sentiment of similar bonds has a yield to maturity at 5% p.a. You are to perform the following:
i. Calculate the bond duration
ii. Calculate the modified duration of the bond
iii. Calculate the duration estimation approach considering the percentage change of bond price if r decreases to 4.5%.
iv. Calculate using the duration estimation approach of the new bond price at r= 4.5%
v. Calculate the percentage of error using duration estimation approach
Based on the above quantitative analysis and calculations, discuss and contrast with the use of duration method with other conventional method in valuation of bonds
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started