Assume a 30 year bond, 8% coupon and initial yield to maturity of 8%. The bonds duration
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Question:
- Assume a 30 year bond, 8% coupon and initial yield to maturity of 8%. The bonds duration is 11.37 years. (What does this mean?)
- Convexity for this bond is 212.4.(What does this mean?)
- If yields move from 8% to 10%, how much would you expect the price of this bond to move?
- What would the price be at the new interest rate?
- Check your answer by re-valuing the bond at the new yield.
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