A 6-year 5% bond is selling to yield 6%. The bond pays interest semi-annually. Using the approximate formula

1. What is the estimated bond price for 150 basis points decrease in the yield, using approximate duration formula to estimate the new price?

2. What would explain the difference between the estimated bond price and the actual bond price you find using the financial calculator?

3. How can you correct the mispricing? Please provide calculations for the correction.

Answer rating: 100% (QA)

Bond Price Estimation and Correction Given 6year bond with 5 coupon semiannual payments Current yield 6 semiannual New desired yield 45 semiannual 150 basis points decrease Need to estimate new price ... View the full answer