Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The curre

Question

Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent. (20 points) a. Find the modified duration. (6 points) b. Refer to part a. If the interest increases by 25 basis points, what is the exact change in price? (3 points) c. Refer to part b. If the interest increases by 25 basis points, what is the approximate change in price? (3 points) d. What is the error of approximation? (3 points) e. Using 25 basis point interest rate changes, approximate the modified duration.

Explanation / Answer

a) Par Value $1,000 Coupon 9% Semi Annual YTM 11% Modified Duration 28.09 years b) Acutal price change PV x PVA $655.60 c) Estimated price change -MD x change in rate x price -$702.00 d) Error of approximation -2.07% e) Par Value $1,000 Coupon 9.25% Semi Annual YTM 11% Modified Duration 28.33 years

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

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