Calculate predicted price using modified duration rule

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Reference no: EM132069340

5. A bond has maturity of 7 years and pays a 7% coupon rate (with coupon paid annually).The bond sells at par value.

(1) Calculate the duration and convexity of the bond.

(2) Assuming its yield to maturity increases from 7% to 8% with maturity unchanged. Calculate the predicted price using modified duration rule, and the percentage error of this rule.

(3) Assuming its yield to maturity increases from 7% to 8% with maturity unchanged. Calculate the predicted price using the modified duration with convexity rule, and the percentage error of this rule.

Reference no: EM132069340

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