Consider a bond with: - 3-year (remaining) maturity - Par value of 1000 - 5% coupon, paid annually. If the bonds are currently trading at a price of 950, what is their yield-to-maturity? If the yield-to-maturity required by the investors increases by 1% what is the new price of the bond? Compute the duration of the bond Use the bond duration computed in c) to estimate its change in price following a 1% change in the yield-to-maturity and compare the actual change computed in b).
Consider a bond with: - 3-year (remaining) maturity - Par value of 1000 - 5% coupon, paid annually. If the bonds are currently trading at a price of 950, what is their yield-to-maturity? If the yield-to-maturity required by the investors increases by 1% what is the new price of the bond? Compute the duration of the bond Use the bond duration computed in c) to estimate its change in price following a 1% change in the yield-to-maturity and compare the actual change computed in b).
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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Question 2 :
Consider a bond with:
- 3-year (remaining) maturity
- Par value of 1000
- 5% coupon, paid annually.
If the bonds are currently trading at a price of 950, what is their yield-to-maturity?
If the yield-to-maturity required by the investors increases by 1% what is the new price of the bond?
Compute the duration of the bond
Use the bond duration computed in c) to estimate its change in price following a 1% change in the yield-to-maturity and compare the actual change computed in b).
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