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What is the estimated bond price for 150 basis points

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Reference no: EM132423138

Problem: A 6-year 5% bond is selling to yield 6%. The bond pays interest semi-annually. 

  1. What is the estimated bond price for 150 basis points decrease in the yield, using approximate duration formula to estimate the new price?
  2. What would explain the difference between the estimated bond price and the actual bond price you find using the financial calculator?
  3. How can you correct the mispricing? Please provide calculations for the correction.

Reference no: EM132423138

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