Find the price of the bond if its yield to maturity falls

Reference no: EM131926423

Question: A 30-year maturity bond making annual coupon payments with a coupon rate of 16.3% has duration of 10.54 years and convexity of 161.2. The bond currently sells at a yield to maturity of 9%.

a. Find the price of the bond if its yield to maturity falls to 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d-1. What is the percent error for each rule? (Enter your answer as a positive value. Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.)

Percent Error

YTM

Duration Rule

Duration-with-Convexity Rule

d-2. What do you conclude about the accuracy of the two rules? A or B

A. The duration rule provides more accurate approximations to the actual change in price.

B. The duration-with-convexity rule provides more accurate approximations to the actual change in price.

e-1. Find the price of the bond if it's yield to maturity rises to 10%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-3. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-4. What is the percent error for each rule? (Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.)

Percent Error

YTM

Duration Rule

Duration-with- Convexity Rule

10%

e-5. Are your conclusions about the accuracy of the two rules consistent with parts (a) - (d)?

Reference no: EM131926423

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