Answer the questions for the bond below which pays interest, Ask an Expert

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Answer the questions for the bond below, which pays interest semi-annually. The modified duration is 3.9944 years and convexity measure is 19.7636 years. ( assume par value is $1000). Coupon rate = 9% Current yield to maturity = 8% Maturity= 5 years

1. Calculate the price value of a basis point if the new yield to maturity is 8.01%

2. Calculate the actual price of the bond for a 50 basis point increase in interest rates (8% to 8.5%) 3. Using duration, estimate the price of the bond for a 50 bp increase interest rates (8% to 8.5)

3. Using both duration and convexity measures, estimate the price of the bond for a 50 bp increase in interest rates (8% to 8.5%)

4. Compare your results in 3 and 4 and explain which is closer to the actual price.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92802537

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