A five-year bond is issued with a face value of GHC3000. The bond pays coupon semiannually at 10%. The yield to maturity is 8%. Another five-year bond with the same face value provides a coupon of 15% but the yield to maturity is 12.5%. You are required to calculate a) the price of each bond. b) the duration of each bond and the convexity of each bond. c) If interest rate increases by 500 basis points, calculate and identify which bond will experience a higher change in price in terms of percentage and absolute amount. Note no excel solution
A five-year bond is issued with a face value of GHC3000. The bond pays coupon semiannually at 10%. The yield to maturity is 8%. Another five-year bond with the same face value provides a coupon of 15% but the yield to maturity is 12.5%. You are required to calculate a) the price of each bond. b) the duration of each bond and the convexity of each bond. c) If interest rate increases by 500 basis points, calculate and identify which bond will experience a higher change in price in terms of percentage and absolute amount. Note no excel solution
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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A five-year bond is issued with a face value of GHC3000. The bond pays coupon semiannually at 10%. The yield to maturity is 8%. Another five-year bond with the same face value provides a coupon of 15% but the yield to maturity is 12.5%. You are required to calculate
a) the price of each bond.
b) the duration of each bond and the convexity of each bond.
c) If interest rate increases by 500 basis points, calculate and identify which bond will experience a higher change in price in terms of percentage and absolute amount.
Note no excel solution
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