Question: A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. Use a financial calculator or spreadsheet to find the price of the bond if its yield to maturity falls to 7% or rises to 9%. What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule? What is the percentage error for each rule? What do you conclude about the accuracy of the two rules?

Step by Step Solution

★★★★★

3.45 Rating (168 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Using a financial calculator we find that the actual price of the bond as a function of yield to mat... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

225-B-A-I (2793).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Marks & Spencer are expanding their marketing. Before beginning, they want to ensure that they are sending users to deep-linked pages on their website https://www.marksandspencer.com/ie. They want to...

Use a financial calculator or an Excel spreadsheet to estimate the yield each of the following investments. Initial Future End of Investment nvestment ( Value ()Year 1,000 10,000 400 3,000 5,500...

Use a financial calculator or an Excel spreadsheet to estimate the yield for each of the following investments. Investment Initial Investment $8,500 $9,500 Endof Year Income ($) 2,500 2,500 2,500...

Castles in the Sand currently sells at a price-earnings multiple of 10. The firm has 2 million shares outstanding, and sells at a price per share of $40. Firm Foundation has a P/E multiple of 8, has...

URGENT A 30-year maturity bond making annual coupon payments with a coupon rate of 15.3% has duration of 11.27 years. The bond currently sells at a yield to maturity of 8%. Required: a. Find the...

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. Note: The...

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. a. Use a...

Calculate the broad-sense heritability( H 2 ) of plant height in this species.(Two decimal places (example: 0.12).) The mean and variance of plant height of two highly inbred strains (P and P) and...

The following statement is an excerpt from ASC 270-10-45-1, 2 [paragraphs 9 and 10 of APB Opinion No. 28, "Interim Financial Reporting"]: Interim financial information is essential to provide...

Evaluate I = x 2 s i n ( x 2 ) d x A . None of the given options B . - x 2 c o s ( x 2 ) 8 x s i n ( x 2 ) 1 6 x c o s ( x 2 ) C C . x 2 c o s ( x 2 ) 8 x s i n ( x 2 ) - 4 c o s ( x 2 ) C D . - 2 x...

A motivational speaker claimed that wearing red on the day of an exam "energizes" the brain and improves performance. Your psychology professor doubts this is true. Design an experiment that would...

The Economics Principles Task (EPT) is worth 30% of the final mark. The EPT is a 'take-home' exercise with a set of tasks to do. The EPT is based on lectures/modules: El (M6), E2 (M7) and E3 (M8)....

Payments to labor = WLC = 100 Payments to capital RKc = 150 Shoe: Sales revenue = PsQs = 120 Payments to labor = WVLS = 90 Payments to capital = RKS = 30 The production function for computers is:...

Suppose that a students course marks for quiz 1, quiz 2, test 1, test 2, and the final exam are 70, 85, 80, 75, and 90, respectively. Write his marks as a column vector.

There are three rooms in a house: the kitchen, the bedroom, and the living room. There is a radio transmitter outside the home that can be received in each room. A user is wearing a device that can...

10. Recall the AT&T customersupplier model in Figure 3.2. For each of the following departments in a typical company, discuss who are their internal or external customers and suppliers. a. Operations...

If New Funds expense ratio (see the previous problem) was 1.1% and the management fee was .7%, what were the total fees paid to the funds investment managers during the year? What were other...

The New Fund had average daily assets of $2.2 billion last year. The fund sold $400 million worth of stock and purchased $500 million during the year. What was its turnover ratio? LOP5

a. What are some differences between unit investment trusts and closed-end funds? b. What are some differences between hedge funds and mutual funds? c. What are some differences between equity and...

You are an investor with a quadratic utility function ( i . e . , mean - variance preferences ) , in a CAPM world comprised of the following three uncorrelated risky assets, and the risk free asset....

Im having issue finding the change in price amount per share. The rest I have correct Nemesis, Inc., has 195,000 shares of stock outstanding. Each share is worth $77, so the company's market value of...

What is the maximum price of an 8 % coupon , 1 5 year Corporate bond could theoretically sell for, assuming $ 1 , 0 0 0 par value.