A newly issued bond has a maturity of 3 years and pays a 7, Ask an Expert

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A newly issued bond has a maturity of 3 years and pays a 7% coupon rate (with coupon payments coming semiannually). The bond sells at par value. (a) What is the modified duration of the bond? (b) Find the actual price of the bond assuming that its yield to maturity (BEY) immediately increases to 10%. (c) What price would be predicted by the duration rule? The predicted change in the price using the modified duration times the change in the yield is just an approximation of the true change in price. What is the percentage error of that rule in this case?

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Financial Management, Finance

Category:- Financial Management
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