How large is the price decline after the interest rate hike

Reference no: EM133469429

Assignment:

Complete the table for calculating the duration given the information below.

a) Time to maturity is X years, the coupon rate is Y percent, the face value is $Z, and the interest rate is 5%.

For the student ID ending with 1 and 2: X=5, Y=5, Z=1,000. For the student ID ending with 3 and 4: X=7, Y=5, Z=1,000. For the student ID ending with 5 and 6: X=5, Y=10, Z=1,000. For the student ID ending with 7 and 8: X=5, Y=5, Z=2,000. For the student ID ending with 9 and 0: X=7, Y=10, Z=1,000.

b) What is the new bond price and duration when the interest rate increases to 5.5%? How large is the price decline after the interest rate hike?

c) Compare your answer in b) with the one obtained from using the approximation formula.

d) Repeat c) when the interest rate now increases from 5 to 25%.

Reference no: EM133469429

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