You have a 5-year 1000 bond with yield-to-maturity of 10, Ask an Expert

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You have a 5-year $1000 bond with yield-to-maturity of 10% and a coupon rate of 10%.

a) What is the duration of this bond? (Assume annual coupon payments and compounding.)

b) If the interest rate increases by 50 basis points (1/2 percent) to 10.5%, by how much will the price of the bond change based on duration rule?

c) Assume the coupon rate for the bond in part (a) is 20% rather than 10%, what is the duration of the bond now? If the interest rate increases by 50 basis points, by how much will the price of the bond change based on duration rule?

d) If the term to maturity for the bond in part (a) is 10 years instead of 5 years, what is the duration of the bond? If the interest rate increases by 50 basis points, by how much will the price of the bond change based on duration rule?

e) If the yield-to-maturity for the bond in part (a) is 15% instead of 10%, what is the duration of the bond? If the interest rate increases by 50 basis points, by how much will the price of the bond change based on duration rule?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92835516

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