INVESTMENTS(LL)W/CONNECT
INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Chapter 16, Problem 24PS

A

Summary Introduction

To determine: The value of convexity and duration of bond using the formula for convexity.

Introduction: The convexity defined as a curvature between bond price and interest rates. It also tells us about the variations of the prices according to the change in yield value of the bond. The duration of the bond means time period. 

B

Summary Introduction

To calculate: The actual price of the bond when YTM immediately increases from 7 % to 8%.

Introduction: The YTM stands for yield to maturity of the bond. The bond price gives the actual value of the bond. The value of bond price decreases if there is an increment in the yield to maturity from 7% to 8%.    

C

Summary Introduction

To calculate: The predicted price value of bond due to increment in YTM and discuss the percentage error of that rule.

Introduction: The price value of the bond is the market price of the bond at which bond will purchase or sell by the investor. The price change is decrement or increment in prices due to variation of factors.

D

Summary Introduction

To calculate: The value of change in price by duration convexity rule.

Introduction: The price change is basically variation in the prices due to some factors and compares with the previous value of the price. If the value is positive means there is an increment in price. Negative value shows the fall in the prices. 

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