Question: Bill Gross thinks interest rates will fall, so he is looking for a long-duration bond to add to his portfolio. He finds a 17-year bond

Bill Gross thinks interest rates will fall, so he is looking for a long-duration bond to add to his portfolio. He finds a 17-year bond issued by Exxon with a coupon of 4.75% and a par value of $100.00. He crunches a few numbers and determines the bond has a modified duration of 12 years and a convexity of 265. Bill's forecast was right, and interest rates fell by 1%. If the bond was trading at $90.00 at the time of purchase, what is the bond's new price after the 1% drop in interest rates?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Location Coordinates Deliveries per Day A (10, 15) 3 B (30, 20) 2 (5, 15) 4 Pinkerton Company is investigating which locations would best position its new plant relative to three important customers...

Q:

ITEM #1 LEARNING FROM THE HEADLINES True to the Learning from the Headlines approach of this course, watch the Part Three Intro Video after you read the short article the video highlights. Notice...

Q:

Hello, I 1.Research the capacity of municipalities in Bosnia and Herzegovina for issuing a bonds? 2.What are pros and cons of bond financing? Compare long-term source of financing between Bosnia and...

Q:

Hello, I have a case study need be answeredregarding pdf files questions, 1.Research the capacity of municipalities in Bosnia and Herzegovina for issuing a bonds? 2.What are pros and cons of bond...

Q:

Hello, I have a case study need be answeredregarding pdf files questions, 1.Research the capacity of municipalities in Bosnia and Herzegovina for issuing a bonds? 2.What are pros and cons of bond...

Q:

Hello, I have a case study need be answeredregarding pdf files questions, 1.Research the capacity of municipalities in Bosnia and Herzegovina for issuing a bonds? 2.What are pros and cons of bond...

Q:

Hello, I have a case study need be answeredregarding pdf files questions, 1.Research the capacity of municipalities in Bosnia and Herzegovina for issuing a bonds? 2.What are pros and cons of bond...

Q:

Hello, I have a case study need be answeredregarding pdf files questions, 1.Research the capacity of municipalities in Bosnia and Herzegovina for issuing a bonds? 2.What are pros and cons of bond...

Q:

Please provide excel spreadsheet detailing how you got to the multiple choice answer. I am trying to get ahead and understand each of the practiceproblems in prep for a exam so it would be very...

Q:

Hi, I have an Assignment for my Finance Subject. I have attached the necessary documentation here for you to view including the Lecture slides of all the Topics covered for this assignment. Please...

Q:

I've attached the question as a word file, thanks! JWCL165_c10_444-505.qxd 8/12/09 7:24 AM Page 444 10 Liabilities Chapter STUDY OBJECTIVES After studying this chapter, you should be able to: 1...

Q:

Suppose that in Calculus Problem 3 repair work costs $100 per hour, ads cost $100 per column inch, and you have $1,000 that you can spend in total. Write down the constrained optimization problem you...

Q:

Which of the following is not true regarding the Modified Accelerated Cost Recovery System (MACRS)? a.No salvage value is used under MACRS. b.MACRS works like the Straight Line method but uses...

Q:

What is the principal amount of a bond that is repaid at the end of the loan term called?Multiple Choice 8 0 0 . 5 1 : 0 9 PriorAccrued priceFace valueCouponDirty priceMarket priceHelpSave

Q:

A join in which the joining condition is based on equality between values in the common columns is called a ( n ) : Question 1 2 options: natural join. equi - join and natural join. equi - join....