Calculate the percentage change in the price of the ten-year

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Reference no: EM13923877

You ran a regression of the yield of TBR Company's 10-year bond on the 10-year U.S. Treasury benchmark's yield using month-end data for the past year. You found the fol- lowing result:

Yield TBR = 0.54 + 1.22 YieldTreasury

where YieldTBR is the yield on the TBR bond and YieldTreasury is the yield on the U.S. Treasury bond. The modified duration on the 10-year U.S. Treasury is 7.0 years, and modified duration on the TBR bond is 6.93 years.

a. Calculate the percentage change in the price of the 10-year U.S. Treasury, assuming a 50-basis-point change in the yield on the 10-year U.S. Treasury.

b. Calculate the percentage change in the price of the TBR bond, using the regression equation, assuming a 50-basis-point change in the yield on the 10-year U.S. Treasury.

	Bond A	Bond B
Coupons	Annual	Annual
Maturity	3 years	3 years
Coupon rate	10%	6%
Yield to maturity	10.65%	10.75%
Price	98.40	88.34

Text Book: Investment Analysis and Portfolio Management By Frank Reilly, Keith Brown.

Reference no: EM13923877

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