Show all work to receive full credit Problem 1: A bond has a 6.5% annual coupon
ID: 2691667 • Letter: S
Question
Show all work to receive full credit Problem 1: A bond has a 6.5% annual coupon rate with 5 years to maturity and pays annual coupon 1.1 What is the price of the bond if the yield to maturity is 4% 1.2 What is price of the bond if the yield to maturity increases by 0.5%? 1.3 What is the % change in the price of the bond when yield increases by 0.5%? 1.4 What is the bond duration? 1.5 What is the modified duration? 1.6 Using the modified duration, what is the percentage change in the price if the yield increases by 0.5% 1.7 What can you conclude regarding the error estimate based on the modified duration?Explanation / Answer
Hi, If you like my answer, please rate my answer first and according to my answer...that way only I can earn points. Thanks FV = $100 PMT = $6.5 N = 5 Price when YTM = 4% = $111.13 Price when YTM = 4.5% = $108.78 Price when YTM = 3.5% = $113.55 Duration = (113.55-108.78)/ 2 * 111.13 = 0.021461352 Modified Duration = 0.021461352 / ( 1 +4%/5) = 0.02129 Price change = 0.021461352 * 5% = 0.10730676%