Answered: Yield to maturity of bonds 8%…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are the portfolio manager of a large company that invests in many securities including corporate bonds. You have been assigned the task of bond portfolio management. You are provided with the following data in relation to bonds:

Maturity period 15 years

Coupon rate 12%

Par value $1,000

Coupons on bonds are paid annually

Yield to maturity of bonds 8%

Required:

i) Calculate the Macualay’s duration, modified duration and convexity

ii) Calculate the change in bond price when yield to maturity changes by one percent using modified duration

iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity is considered

Please show me the details calculation.

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