Using duration and convexity formula

Assignment Help Financial Management

Reference no: EM131543794

A zero coupon bond matures in 5 years with a par value of $1000 and is currently selling at YTM of 8%.

a. What would be the approximate price of this bond if required rate of return drops to 6% using duration and convexity formula?

b. What is the actual price of the bond when YTM is 6%?

c. Why is the actual percentage change in price different when required rate of return increases by 2% as opposed to when required rate of return decreases by 2%? Explain this question by calculating actual percentage change in price of the bond at both 6% and 10% required rate of return.

Reference no: EM131543794

Questions Cloud

Straddle using at-the-montey european options : Tom invests in a 6-month straddle using at-the-montey European options. The current price of the stock is $100.

What is the estimated stock value using ddm model : Avista Utility paid out $1.37 dividend per share last year. What’s the estimated stock value using the DDM model?

Estimated cost of equity if it changed its capital structure : What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity?

How much interest will refinance save : How much interest will refinance save?

Using duration and convexity formula : What would be the approximate price of this bond if required rate of return drops to 6% using duration and convexity formula?

Review the case of spiritual care : Spiritual care is part of the art of nursing and professional care. Spiritual care is defined by the literature as recognizing, respecting, and meeting.

Discuss terms of ethical decision-making in the event : When it comes to facilitating spiritual care for patients with different worldviews, I feel I have many strengths.

Discuss the concept of firm target capital structure : Discuss the concept of a firm’s “target” capital structure. How might this be determined?

Calculate your employee cost for the year one contribution : Calculate your “employee’s cost” for the Year 1 contribution.

User Account

All Pages