Question
You have a 2.5%, 2-year coupon-paying bond with a face value of 1,000. The yield to maturity is 2% per year and yields are paid
You have a 2.5%, 2-year coupon-paying bond with a face value of £1,000. The yield to maturity is 2% per year and yields are paid semi-annually. (i) Suppose the bond paid the last coupon 35 days ago and the next coupon payment is due in 147 days.
1) What would be the invoice price?
2) Use the duration approximation to calculate the approximate price change if the yield to maturity increase by 0.5%. What is the approximation error?
Step by Step Solution
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Step: 1
To calculate the invoice price of the bond we need to consider the time until the next coupon payment and the yield to maturity Given Coupon rate 25 p...
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Corporate Finance
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
13th International Edition
1265533199, 978-1265533199
