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Compute the macaulay duration of the bond

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Reference no: EM132709860

A newly issued bond has a maturity of 10 years and pays a 7% coupon rate (with coupon payments coming once annually). The bond sells at par value, $100. (Yes, one hundred dollars). The convexity of the bond is 64.9330.

-Compute the Macaulay duration of the bond. Show all computations.

-Calculate the actual price of the bond assuming that its yield to maturity immediately decreases 100 basis points from the current yield to maturity (with maturity still 10 years).

-Suppose the yield to maturity of the bond falls by 100 basis point from the current yield to maturity.

-What price would be predicted by the duration rule? What is the percentage error of that rule? Compute.What price would be predicted by the duration-with-convexity rule? What is the percentage error of that rule? Compute.

Reference no: EM132709860

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