Consider a 8.80 percent coupon bond with five years to maturity and a current pr

Question

Consider a 8.80 percent coupon bond with five years to maturity and a current price of $956.20. Suppose the yield on the bond suddenly increases by 2 percent.

Use duration to estimate the new price of the bond. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Calculate the new bond price. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Consider a 8.80 percent coupon bond with five years to maturity and a current price of $956.20. Suppose the yield on the bond suddenly increases by 2 percent.

Explanation / Answer

Under duration the price should fall by 2*5 =10%

So new price will be 956.20*.90= 860.58.

Using a financial calculator (BAII plus) the actual price will be 886.17

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.