A bond for the Chelle Corporation has the following characteristics: Maturity - 12 years Coupon - 12% Yield to maturity - 11.50% Macaulay duration - 6.73 years Convexity - 59.30 Noncallable Assume bond pays interest semiannually. Use only the data provided i the table above (in the problem statement) for your calculations. a. Calculate the approximate price change for this bond using only its duration, assuming its yield to maturity increased by 100 basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use minus sign to enter negative value, if any. Percentage change in price: % When you are dealing with large yield changes to calculate more precise bond price change -Select- v on price change. b. Calculate the approximate price change for this bond, using only duration, if its yield to maturity declined by 200 basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use a minus sign to enter negative value, if any. Percentage change in price: c. Calculate the approximate price change for this bond using both duration and convexity in the computation, once again assuming that its yield to maturity declined by 200 basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use a minus sign to enter negative value, if any. Percentage change in price: d. Discuss (without calculations) what would happen to your estimate of the price change if this was a callable bond. When rates decline, the price of callable bond increases at a -Select- v rate than the price of noncallable bond.
A bond for the Chelle Corporation has the following characteristics: Maturity - 12 years Coupon - 12% Yield to maturity - 11.50% Macaulay duration - 6.73 years Convexity - 59.30 Noncallable Assume bond pays interest semiannually. Use only the data provided i the table above (in the problem statement) for your calculations. a. Calculate the approximate price change for this bond using only its duration, assuming its yield to maturity increased by 100 basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use minus sign to enter negative value, if any. Percentage change in price: % When you are dealing with large yield changes to calculate more precise bond price change -Select- v on price change. b. Calculate the approximate price change for this bond, using only duration, if its yield to maturity declined by 200 basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use a minus sign to enter negative value, if any. Percentage change in price: c. Calculate the approximate price change for this bond using both duration and convexity in the computation, once again assuming that its yield to maturity declined by 200 basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use a minus sign to enter negative value, if any. Percentage change in price: d. Discuss (without calculations) what would happen to your estimate of the price change if this was a callable bond. When rates decline, the price of callable bond increases at a -Select- v rate than the price of noncallable bond.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text:A bond for the Chelle Corporation has the following characteristics:
Maturity - 12 years
Coupon - 12%
Yield to maturity - 11.50%
Macaulay duration - 6.73 years
Convexity - 59.30
Noncallable
Assume bond pays interest semiannually. Use only the data provided in the table above (in the problem statement) for your calculations.
a. Calculate the approximate price change for this bond using only its duration, assuming its yield to maturity increased by 100 basis points. Do not round intermediate
calculations. Round your answer to two decimal places. Use a minus sign to enter negative value, if any.
Percentage change in price:
%
When you are dealing with large yield changes to calculate more precise bond price change -Select-
v on price change.
b. Calculate the approximate price change for this bond, using only duration, if its yield to maturity declined by 200 basis points. Do not round intermediate calculations.
Round your answer to two decimal places. Use a minus sign to enter negative value, if any.
Percentage change in price:
%
c. Calculate the approximate price change for this bond using both duration and convexity in the computation, once again assuming that its yield to maturity declined by 200
basis points. Do not round intermediate calculations. Round your answer to two decimal places. Use a minus sign to enter negative value, if any.
Percentage change in price:
d. Discuss (without calculations) what would happen to your estimate of the price change if this was a callable bond.
When rates decline, the price of callable bond increases at a -Select- v rate than the price of noncallable bond.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education