A 30-year $100-par bond pays 3% annual coupons. Its price is $96.48. If its annual yield to
Fantastic news! We've Found the answer you've been seeking!
Question:
A 30-year $100-par bond pays 3% annual coupons. Its price is $96.48. If its annual yield to maturity increases by 90 basis points, how accurate (in % error) is the estimate of its price using duration, and how does the accuracy change if you include the convexity adjustment? Use 2 decimal places for the % errors. Do the estimates over/underestimate the true price, and was that what you were expecting?
Expert Answer:
Answer rating: 100% (QA)
Solution The current yield will be the IY rate function of below variables IY of N 30 PMT 3 PV 96... View the full answer
Posted Date:
Students also viewed these accounting questions
-
If a bonds yield to maturity does not change, how does its cash price change between coupon payments?
-
If a bond's yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this with a simple example of a four-year bond selling at a premium to...
-
A $2000 bond with annual coupons is redeemable at par in five years. If the first coupon is $400, and subsequent annual coupons are worth 75% of the previous years coupon, find the purchase price of...
-
The following list shows the top six pharmaceutical companies in the United States and their sales figures ($ millions) for a recent year. Use this information to construct a pie chart and a bar...
-
Dr. Huggins, a dentist, was staying at the Ritz Hotel in Nashville, Tennessee, where he had a suite. When he went into the bathroom to shave, he flipped the light switch on the wall. When he did, he...
-
Discuss the linkage between lean systems and environmental sustainability.
-
Selected accounts and a section of a worksheet for Sunhill Stores are shown below. Required (a) The beginning and ending inventory were \($45\) 760 and \($52\) 420 respectively. Enter the beginning...
-
Memphis Electrical makes small electric motors for a variety of home appliances. Memphis sells the motors to appliance makers, who assemble and sell the appliances to retail outlets. Although Memphis...
-
Kericho Sports Club has been operating for some time now. The treasurer analysed the cash book and produced the following Receipts and Payments account for the year ended 31st Dec. 2018. Receipts...
-
In the current year (year 0), Amisha became a shareholder in Sultan Inc., a calendar year S corporation, by contributing $15,000 cash in exchange for stock. Shortly before the end of the year,...
-
350 Specification and Verification II Explain how a register can be modelled either as a unit-delay, or with an explicit clock input. [4 marks] Describe the relationship between the two models. [4...
-
Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 9%, a debt cost of capital of 7.5%, a marginal corporate tax rate of 45%, and a debt-equity ratio of 2.7. Suppose Goodyear...
-
Krell Industries has a share price of \($21.44\) today. If Krell is expected to pay a dividend of \($0.78\) this year, and its stock price is expected to grow to \($24.63\) at the end of the year,...
-
Explain why the risk premium of diversifiable risk is zero.
-
If a risky investment has a beta of zero, what should its cost of capital be according to the CAPM? How can you justify this?
-
For an investment horizon of just one year, which of these investments was the most variable? Which was the least variable?
-
u jan Q.6 Consider the two-country (Canada and Germany) model of exchange rate determination discussed in class with short-run nominal rigidities and in which money market equilibrium holds every...
-
Find the market equilibrium point for the following demand and supply functions. Demand: 2p = - q + 56 Supply: 3p - q = 34
-
Calculate the work done when a force of 2 N moves a book 3 m.
-
The word burn is often used to describe the process of cellular respiration, in which cells release energy from the chemical bonds in food molecules. How is the burning that goes on in cells...
-
Show that 45 J of work is done when a 15-N force pushes a cart 3 m. Power = work done,time interval, p = W,t
Study smarter with the SolutionInn App