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Problem - Consider an annual coupon bond with a face value of $100, exactly four years to maturity and a 4% annual coupon. The bond is priced to yield 3.25% per year (annually compounded rate).
a) Calculate the price of the bond.
b) Calculate the bond's duration.
c) Calculate the bond's modified duration. Make sure your answer accounts for the fact that the bond is an annual pay bond (not semiannual).
d) Calculate the proportional change in the bond price if the bond yield changes from 3.25% to 3.5%.
e) Compare the answer that you get in d) to the estimate of this proportional change that you can derive from the bond's modified duration.
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Cabana Corporation has 400,000 shares of common stock outstanding throughout 2013. In addition, the corporation has 5,000, 20-year, 9% bonds issued at par in 2011. Each $1,000 bond is convertible into 20 shares of common stock after 9/23/14. During t..
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