Consider a 30-year 3% coupon bond with semi-annual coupon payments and a face value of $1,000....
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Consider a 30-year 3% coupon bond with semi-annual coupon payments and a face value of $1,000. Currently, the price of the bond is $584.87; duration of the bond is 16.5 years and convexity is 378.6 year². Calculate the following for this bond: (30 points) a) Yield-to-maturity (YTM). b) Modified duration. c) Using modified duration only, estimate the percentage change in bond price when YTM goes DOWN by 2%. d) Using modified duration AND convexity, estimate the percentage change in bond price when YTM goes DOWN by 2%. e) Now calculate the actual price of the bond with the YTM decreasing by 2%. What is the actual percentage change in bond value? f) Now compare your answers in part c) and d): which method leads to a more accurate estimate on the bond's value change? Consider a 30-year 3% coupon bond with semi-annual coupon payments and a face value of $1,000. Currently, the price of the bond is $584.87; duration of the bond is 16.5 years and convexity is 378.6 year². Calculate the following for this bond: (30 points) a) Yield-to-maturity (YTM). b) Modified duration. c) Using modified duration only, estimate the percentage change in bond price when YTM goes DOWN by 2%. d) Using modified duration AND convexity, estimate the percentage change in bond price when YTM goes DOWN by 2%. e) Now calculate the actual price of the bond with the YTM decreasing by 2%. What is the actual percentage change in bond value? f) Now compare your answers in part c) and d): which method leads to a more accurate estimate on the bond's value change?
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Answer rating: 100% (QA)
To calculate the requested values lets use the given information and formulas related to bond pricing and duration a Yieldtomaturity YTM The yieldtomaturity can be calculated by trial and error or by ... View the full answer
Related Book For
Financial Management for Public Health and Not for Profit Organizations
ISBN: 978-0132805667
4th edition
Authors: Steven A. Finkler, Thad Calabrese
Posted Date:
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