Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. consider bond abc. it’s a bit of an odd bond tha

Consider Bond ABC. It’s a bit of an odd bond that has a step-up clause in...

70.2K

Verified Solution

Question

Finance

Consider Bond ABC. It’s a bit of an odd bond that has a step-upclause in it. Specifically, the bond has a CR of 5% for the nextfive years, but then it increases to 6% for the remaining 10 yearsof the bond. The YTM on the bond is 5.4%, and payments are madesemi-annually. The face value of the bond is $1,000 and paymentsare made semiannually.  

a.   What is the Modified Duration of thisbond?       

b.   What is the Convexity of theBond?        

c.   What is the predicted price of the bond accordingto both Duration and Convexity, if the YTM increases by 1%?

Answer & Explanation Solved by verified expert
3.6 Ratings (603 Votes)
We need to formulate the table as shown below Payment frequency is semi annual Hence number of periods nos of half years in 15 years 2 x 15 30 Cash flow per period over first 5 years ie 10 periods Semi annual coupon 52 25 x 1000 25 Cash flow per period over next 10 years ie 20 periods Semi annual coupon 62 3 x 1000 30 Cash flow in the last period semi annual coupon Face value repayment 30 1000 1030 Yield 54 per annum Yield per period Semi annual yield y 54 2 27 Discount factor DF 1 yn Please see    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Consider Bond ABC. It’s a bit of an odd bond that has a step-upclause in it. Specifically, the bond has a CR of 5% for the nextfive years, but then it increases to 6% for the remaining 10 yearsof the bond. The YTM on the bond is 5.4%, and payments are madesemi-annually. The face value of the bond is $1,000 and paymentsare made semiannually.  a.   What is the Modified Duration of thisbond?       b.   What is the Convexity of theBond?        c.   What is the predicted price of the bond accordingto both Duration and Convexity, if the YTM increases by 1%?

Other questions asked by students

Q

Calculate the pH at the equivalence point for titrating 0.160 M solutions of each of the...

Chemistry
Q

Pick blood OR lymph to fill in the following blanks. (1 point) Once T and B...

Biology
Q

How can a person tell if he or she is psychologically susceptible to following a toxic...

Psychology
Q

Describe the postindustrial workforce. Give examples of the types of work that are most common in...

Psychology
Q

Match the following organisms to their correct Phyla Diatoms Physarum Paramecium caudatum Porphyra 1 Phylum...

Biology
Q

Question 8 This diagram shows an reaction Free energy time products reactants

Biology
Q

What is the angle of elevation of the sun if a 45 foot tall flag...

Basic Math
Q

8 Maya spent 40 of her savings to buy a video game that costs 60...

Algebra
Q

It is also known that the value of a European put cannot be greater than...

Accounting
Q

what have i missed that its not complete? ...

Accounting
Q

balance per books as of june 30 $8600 outstanding checks $820 ...

Accounting
Q

Compare the pros and cons between Quickbooks and Oracle ERP Cloud. Ensure you mention all...

Accounting