Consider a 2-year bond whose par value is $1,000 and coupon rate is 4% per year, pay semi-annually. The bond's current price is such that its yield to maturity is 5% p.a., se annual compounding. Suppose that the yield increases by 0.1% (i.e., from 5% p.a. to 5.1 p.a.). Using the concept of duration, what do you estimate the new bond price to be? Wha the actual new bond price?
Consider a 2-year bond whose par value is $1,000 and coupon rate is 4% per year, pay semi-annually. The bond's current price is such that its yield to maturity is 5% p.a., se annual compounding. Suppose that the yield increases by 0.1% (i.e., from 5% p.a. to 5.1 p.a.). Using the concept of duration, what do you estimate the new bond price to be? Wha the actual new bond price?
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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![2. Consider a 2-year bond whose par value is $1,000 and coupon rate is 4% per year, payable
semi-annually. The bond's current price is such that its yield to maturity is 5% p.a., semi-
annual compounding. Suppose that the yield increases by 0.1% (i.e., from 5% p.a. to 5.10%
p.a.). Using the concept of duration, what do you estimate the new bond price to be? What is
the actual new bond price?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1a0a53c1-24f6-4eac-80be-1ec2f8d591bb%2F72f9332d-c31c-4992-bfdf-6dc07e3c6b51%2Fadw5ag6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Consider a 2-year bond whose par value is $1,000 and coupon rate is 4% per year, payable
semi-annually. The bond's current price is such that its yield to maturity is 5% p.a., semi-
annual compounding. Suppose that the yield increases by 0.1% (i.e., from 5% p.a. to 5.10%
p.a.). Using the concept of duration, what do you estimate the new bond price to be? What is
the actual new bond price?
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