A 9-year-maturity zero-coupon bond selling at a yield to maturity of 7.75% (effective annual yield) has convexity of 169.5 and modified duration of 8.06 years. A 30-year-maturity 7.5% coupon bond making annual coupon payments also selling at a yield to maturity of 7.75% has nearly identical duration-8.04 years-but considerably higher convexity of 257.5. Required: a. Suppose the yield to maturity on both bonds increases to 8.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 6.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?

A 9-year-maturity zero-coupon bond selling at a yield to maturity of 7.75% (effective annual yield) has convexity of 169.5 and modified duration of 8.06 years. A 30-year-maturity 7.5% coupon bond making annual coupon payments also selling at a yield to maturity of 7.75% has nearly identical duration-8.04 years-but considerably higher convexity of 257.5. Required: a. Suppose the yield to maturity on both bonds increases to 8.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 6.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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B.) The Hull-White model is considering the short rate movement follow the lognormal distribution. 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 1.0000 0.0000 0.0000 1.0000 A 10-year bond issued today at par with an A rating is assumed to bear a coupon rate of 7%. If a bond is issued today at par with a B rating and with a recovery percentage of 50%, what should be its coupon rate so that its expected return will also be 7%? Choose the closest answer A) 2.5% B) 5% C) 7.5% D) 9% E) 11%
All else equal, a bond would be sold at __________ if its coupon rate is _________ its yield to maturity. a. premium, lower than b. par, equal to c. discount, greater than d. discount, equal to
You have estimated that the Duration of a particular bond is 18,If the yield to maturity on this bond is 10,1, what is the bond's Modified Duration ?
A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9% (effective annual yield) has convexity of 174.3 and modified duration of 12.06 years. A 30-year-maturity 7% coupon bond making annual coupon payments also selling at a yield to maturity of 9% has nearly identical duration-12.04 years-but considerably higher convexity of 271.1. Required: a. Suppose the yield to maturity on both bonds increases to 10%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 8%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? Complete this question by entering your answers in the tabs below. Required A Required B Suppose the yield to maturity on both bonds increases to 10%. What will be the actual percentage capital loss on each bond?…
Solve this practice problem
The longer the term a bond has before it matures, ______________ will be the affect on its value due to a 1% change in market interest rates. Select one: a. The lower b. Either A or B depending on the direction of the interest change c. Neither A or B, since bond maturity has no impact on interest rate sensitivity. d. The greater
Which of the following statements is correct assuming same market rates for all maturities (flat yield curve)? e a Extendible bonds allow bond issuer to extend the maturity date. O b. Callable bonds give the bond issuer an option to call the bond back before the maturity date at a predetermined price. Oc. When the market yield is equal to a bond's stated coupon rate, the bond's current yield is greater than its coupon yield. Od. The cash price plus the accrued interest on the bond is the quoted price of the bond. Current yield is the ratio of annual coupon payment divided by the par value. o e.
can you may this calculations for each of my bonds?. For each of your bonds, calculate expected defavvult percent loss as = default probability* (1 - recovery rate ). You will need to use the default rates and recovery rates that match each bond's rating. 4. Calculate the overall expected loss to your portfolio as the weighted average of the expected default percent loss
Bond A makes semi-annual interest payments of $30. Bond B makes an annual payment of $50. All else equal, which one has the lower coupon rate? Select one: a. B b. A=B c. A
1.If the coupon rate is less than the market rate, the bond will be a: Group of answer choices A. premium bond B. discount bond C. at par bond 2.If the coupon rate is greater than the market rate, the bond will be a: A. premium bond B. discount bond C. at par bond 3. If the price of the bond is greater than the par value, then the bond is a: A. premium bond B. discount bond C. at par bond 4.Company X is issuing bonds. They plan to issue 10,000, $1000 par, 7% bonds that pay semi-annual for 5 years. If the price per bond is $1020, what is the market annual rate-of-return? (percentage, 2 decimals, e.g. xx.xx)
Bond A has a coupon rate of 4% and a yield of 3%. Bond B has a coupon rate of 3% and a yield of 4%. Which bond has the lower price? A B
Suppose you want to figure out the relationship between duration and maturity, so you consider the following three T-Bonds. You compute a. The duration of a two-year Treasury bond with a 10 percent semiannual coupon selling at par b. The duration of a three-year Treasury bond with a 10 percent semiannual coupon selling at par c. The duration of a four-year Treasury bond with a 10 percent semiannual coupon selling at par

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