Calculate the average percentage change

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Question - You have just bought a bond paying its face value of S /. 100.0 that is, it trades at par. Pay an annual coupon of 6% and expire in exactly five years.

a) Calculate its price if, a few hours after buying it, the market interest rate rises 25 basis points.

b) Calculate its price if, a few hours after buying it, the market interest rate drops 25 basis points.

c) Calculate the average percentage change, in absolute value, before a change of 25 basis points in the market interest rate, that is, in the yield to maturity.

d) Obtain the value of the modified duration of the bond at the time of purchase.

e) Compare the value obtained in sections c and d.

Reference no: EM132947975

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