Reference no: EM133120020
Calculate the requested measures in parts
(a) through (g) for a corporate bond that pays interests semiannually:
Coupon rate (CR) 7% Yield to maturity (YTM) 6% Maturity (years) 12 Par value (F) $1,000 Price $1,084.68
a) Compute the Macaulay durations for the bond.
b) Compute the modified duration for the bond.
c) Compute the convexity for the bond.
d) Calculate the actual price of the bond, after a 150-basis-point decrease in the yield.
e) Using only duration, estimate the price of the bond for a 150-basis-point decrease in the yield.
f) Using both duration and convexity, estimate the price of the bond for a 150-basis-point decrease in the yield.
g) Why the estimate of your result in part f is closer to the actual price than that in part e)?
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