A newly issued bond has a maturity of 10 years and pays a 5.5% coupon rate...

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Finance

A newly issued bond has a maturity of 10 years and pays a 5.5%coupon rate (with coupon payments coming once annually). The bondsells at par value.
a. What are the convexity and the duration of the bond?
b. Find the actual price of the bond assuming that its yield tomaturity immediately increases from 5.5% to 6.5% (with maturitystill 10 years). Assume a par value of 100.
c. What price would be predicted by the modified durationrule?
d. What is the percentage error of that rule? What price wouldbe predicted by the modified duration-with-convexity rule? What isthe percentage error of that rule?

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aPeriodCash FlowDiscounting factorPV Cash FlowDuration CalcConvexity Calc01000001YTMumber of coupon payments in the yearperiodcashflowdiscounting See Answer

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A newly issued bond has a maturity of 10 years and pays a 5.5%coupon rate (with coupon payments coming once annually). The bondsells at par value.a. What are the convexity and the duration of the bond?b. Find the actual price of the bond assuming that its yield tomaturity immediately increases from 5.5% to 6.5% (with maturitystill 10 years). Assume a par value of 100.c. What price would be predicted by the modified durationrule?d. What is the percentage error of that rule? What price wouldbe predicted by the modified duration-with-convexity rule? What isthe percentage error of that rule?