4. There is a 9year bond with an annual coupon rate of 5.25% (paid semiannually) yielding...
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4. There is a 9year bond with an annual coupon rate of 5.25% (paid semiannually) yielding 6.35% p.a. (continuously compounded). A) Calculate the bond price, duration and convexity. B) Calculate the new bond price and the percentage change in bond price if the yield changes to 6.45% (maturity remains at 9 years). C) Calculate the percentage change in bond price using 1) duration, and 2) both duration and convexity. D) Suppose the yield is still 6.35% p.a., continuously compounded. Let's examine two bonds, Bond A and Bond B. The annual coupon rate is 4.4% and 5.8% respectively (both paid annually), and the maturity is 15 and 5 years, respectively. Without showing the spreadsheets, simply report the bond price, duration and convexity for each bond. Using both the duration and convexity to calculate the percentage price change for each bond when the yield increases or decreases by 0.85% (i.e., changing to either 7.2% or 5.5%). Compare the price changes between the two bonds. What can you conclude? E) Suppose the yield is 6.55% and we have two bonds, A and B. Bond A has a coupon of 5.45% and maturity of 12 years while B has a coupon of 1.98% and maturity of 10 years. All coupons are paid annually. Calculate the price, duration and convexity of each bond. Using duration and convexity to calculate the percentage price change for each bond when the yield increases or decreases by 1.3%. Compare the price changes and draw conclusions. Again, for this question, no need to show the spreadsheets.
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Answer rating: 100% (QA)
Solution A To calculate the bond price duration and convexity we need to use the bond pricing formula duration formula and convexity formula Let s calculate each one step by step Bond Price The bond p View the full answer
Related Book For
Investment Analysis and Portfolio Management
ISBN: 9780538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown
Posted Date:
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