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Duration of the Bond Assignment | Homework For You

Author:
June 6th, 2020
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 y = 0.094.Homework For You
(a) Compute the current price of the bond, Po.
(b) Compute the duration of the bond, D BER Em ww w w w
(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. WS LOW (a) Approximate the percentage price change in part (e) using D.
(e) Suppose instead of rising to y, the yield rises from yo to -0.134. Compute the price, Pr, of the bond at this higher yield and determine the resulting percentage price change.
(1) Approximate the percentage price change in part (e) using D.
(g) Compute the convexity of the bond (at the original yield, yo).
(h) Estimate the percentage price change in part (e) using duration and convexity.
(0) 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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