Question: Answer the below questions for bonds A and B. (a) Calculate the actual price of the bonds for a 100-basis-point increase in interest rates. (b)

Answer the below questions for bonds A and B.

(a) Calculate the actual price of the bonds for a 100-basis-point increase in interest rates.
(b) Using duration, estimate the price of the bonds for a 100-basis-point increase in interest rates.
(c) Using both duration and convexity measures, estimate the price of the bonds for a 100-basis-point increase in interest rates.
(d) Comment on the accuracy of your results in parts b and c, and state why one approximation is closer to the actual price than the other.
(e) Without working through calculations, indicate whether the duration of the two bonds would be higher or lower if the yield to maturity is 10% rather than 8%.

Bond A Bond B 9% 8% Coupon Yield to maturity 8% Maturity (years)2 Par Price 890 $100.00 $100.00 $100.00 $104.055

Step by Step Solution

★★★★★

3.28 Rating (174 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a For Bond A we get a bond quote of 100 for our initial price if we have an 8 coupon rate and an 8 yield If we change the yield 100 basis point so the yield is 9 then the value of the bond P is the pr... 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)

518-B-C-F-B-V (534).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

Bonds A and B both have $10,000 face values, 10% coupon rates, and sell with yields-to-maturity of 9%. However, bond A has a 20-year term-to-maturity, whereas bond B has a 5-year term-to-maturity....

Bonds A and B both have $10,000 face values, 8% yields-to-maturity, and 10-year terms-to-maturity. However, bond A has a 10% coupon rate, whereas bond B sells at par. (Both make annual interest...

Bonds A and B are two straight yen-denominated international bonds, with the same maturity of four years and the same YTM of 9 percent. Bond A has an annual coupon of 11 percent and is accordingly...

4. Answer the below questions for bonds A and B. (a) Calculate the actual price of the bonds for a 100-basis-point increase in interest rates. (b) Using duration, estimate the price of the bonds for...

NO EXCEL!!! please write out the formulas 3) Answer the below questions for bonds A and B. (a) Calculate the actual price of the bonds for a 100-basis-point ( 1% annual) increase in interest rates....

4. Answer the below questions for bonds A and B. Coupon Yield to maturity Maturity (years) Par Price Modified Duration Convexity Bond A Bond B 8% 9% 8% 8% 2 $100.00 $100.00 $100.00 $104.055 1.815...

Questions from Fabozzi, Chapter 4 4. Answer the below questions for bonds A and B (assume they pay interest semiannually). Bond A 8% 8% Bond B 9% 8% Coupon Yield to maturity Maturity (years) Par...

Fabozzi, 10th edition, Chapter 4, Problem H4. Answer the below questions for bonds A and B. (25 points) (a) Calculate the actual prike of the bonds for a 100-basis-point incr e in interest rates. (b)...

Answer the below questions for bonds A and B. Bond A Bond B Coupon 8% 9% Yield to maturity 8% 8% Maturity (years) 2 5 Par $100.00 $100.00 Price $100.00 $104.055 (a) Calculate the actual price of the...

Answer the below questions for bonds A and B . Bond A Bond B Coupon 8 % 9 % Yield to maturity 8 % 8 % Maturity ( years ) 2 5 Par $ 1 0 0 . 0 0 $ 1 0 0 . 0 0 Price $ 1 0 0 . 0 0 $ 1 0 4 . 0 5 5...

Accelerometer the system shown in Fig. 5.76 can be used to measure 1he acceleration of 1he system. An observer riding on the platform measures the angle θ that the 1hread supporting the light...

From the following information compute the FCInv (Fixed Capital Investment) of Acme Limited. Selected Financial Data Particulars 2018 (INR) 2017 (INR) Gross PP&E(Property,Plant and Equipment) 500000...

niles is making an investment with an expected return of 1 2 percent. if the standard deviation of the return is 4 . 5 percent

Use the model in the File C9 to work this problem. Marginal cost of capital a. Refer back to Problem 9-20. Now, assume that Adams Corporation changes its capital structure to 45 percent debt, 10...

The following excerpt is taken from an article titled Denver Investment to Make $800 Million Treasury Move, that appeared in the December 9, 1991, issue of BondWeek, p. 1: Denver Investment Advisors...

You are a portfolio manager who has presented a report to a client. The report indicates the duration of each security in the portfolio. One of the securities has a maturity of 15 years but a...

Answer the below questions. (a) Suppose that the spread duration for a fixed-rate bond is 2.5. What is the approximate change in the bonds price if the spread changes by 50 basis points? (b) What is...

Charleston Corporation ( CC ) now operates as a "regular" corporation, but it is considering a switch to S Corporation status. CC is owned by 1 0 0 stockholders who each hold 1 % of the stock, and...

The management of a conservative firm has adopted a policy of never letting debt exceed 40 percent of total financing. The firm will earn $16,000,000 but distribute 40 percent in dividends, so the...

Internal rate of return and modified internal rate of return: For the project shown in the following table poctured below. calculate the internal rate of return (IRR) and modified internal rate of...