A $1000 par value bond with 7% annual coupons maturing at par in 4 years sells at a price to yield 6% effective. If the interest rate decreases to 5.77%, Find the difference between the estimate of the new price using the first-order modified approximation and the estimate of the new price using the first- order Macaulay approximation. Possible Answers A .02 В .03 C .06 D .05 E .04

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
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A $1000 par value bond with 7% annual
coupons maturing at par in 4 years sells at a
price to yield 6% effective. If the interest rate
decreases to 5.77%, Find the difference
between the estimate of the new price using
the first-order modified approximation and
the estimate of the new price using the first-
order Macaulay approximation.
Possible Answers
A
.02
В
.03
C
.06
D
.05
E
.04
Transcribed Image Text:A $1000 par value bond with 7% annual coupons maturing at par in 4 years sells at a price to yield 6% effective. If the interest rate decreases to 5.77%, Find the difference between the estimate of the new price using the first-order modified approximation and the estimate of the new price using the first- order Macaulay approximation. Possible Answers A .02 В .03 C .06 D .05 E .04
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