# Current Price of the Bond Assignment | Homework For You

1. Consider an annual coupon bond with a face value of \$1000, annual coupon rate of 7.5%, three years to maturity and initial YTM of 0.094.
(a) Compute the current price of the bond, P.
(b) Compute the duration of the bond, D
(c) Suppose that the yield rises to y = 10. Compute the price, P. of the bond at this higher yield and determine the actual percentage price change.
(d) Approximate the percentage price change in part (e) using D.
(e) Suppose instead of rising to yi, the yield rises from yo to y = 0.134. Compute the price, Pl. of the bond at this higher yield and determine the resulting percentage price change.
(f) Approximate the percentage price change in part (e) using D. (8) Compute the convexity of the bond (at the original yield, yo).
(h) Estimate the percentage price change in part (e) using duration and convexity.
(i) Briefly comment on the strengths and weaknesses of using duration to approximate price changes due to changes in yields.Get Finance homework help today

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