Problem 11-24 A 30-year maturity bond making annual coupon payments with a coupon rate of 14% has...

60.1K

Verified Solution

Question

Finance

Problem 11-24
A 30-year maturity bond making annual coupon payments with acoupon rate of 14% has duration of 10.53 years and convexity of192.2. The bond currently sells at a yield to maturity of 9%.
Required:
(a)
Find the price of the bond if its yield to maturity falls to 8%or rises to 10%. (Round your answers to 2 decimal places.Omit the "$" sign in your response.)
  Yield to maturity of 8% $
  Yield to maturity of 10% $
(b)
What prices for the bond at these new yields would be predictedby the duration rule and the duration-with-convexityrule?(Round your answers to 2 decimal places. Omit the "$"sign in your response.)
Duration rule Duration-with-
convexity rule
  YTM falls to 8% $    $
  YTM increases to 10% $    $
(c) What is the percent error for each rule? (Round youranswers to 3 decimal places. Omit the "%" sign in yourresponse.)
Duration rule Duration-with-
convexity rule
  Percent error for 8% YTM %   %
  Percent error for 10% YTM %   %
(d) What do you conclude about the accuracy of the two rules?

Answer & Explanation Solved by verified expert

3.7 Ratings (382 Votes)

SEE THE 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: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Problem 11-24A 30-year maturity bond making annual coupon payments with acoupon rate of 14% has duration of 10.53 years and convexity of192.2. The bond currently sells at a yield to maturity of 9%.Required:(a)Find the price of the bond if its yield to maturity falls to 8%or rises to 10%. (Round your answers to 2 decimal places.Omit the "$" sign in your response.) Yield to maturity of 8%$ Yield to maturity of 10%$ (b)What prices for the bond at these new yields would be predictedby the duration rule and the duration-with-convexityrule?(Round your answers to 2 decimal places. Omit the "$"sign in your response.)Duration ruleDuration-with-convexity rule YTM falls to 8%$ $ YTM increases to 10%$ $ (c)What is the percent error for each rule? (Round youranswers to 3 decimal places. Omit the "%" sign in yourresponse.)Duration ruleDuration-with-convexity rule Percent error for 8% YTM% % Percent error for 10% YTM% % (d)What do you conclude about the accuracy of the two rules?

Required:
(a)	Find the price of the bond if its yield to maturity falls to 8%or rises to 10%. (Round your answers to 2 decimal places.Omit the "$" sign in your response.)

	Duration rule	Duration-with- convexity rule
YTM falls to 8%	$	$
YTM increases to 10%	$	$

	Duration rule	Duration-with- convexity rule
Percent error for 8% YTM	%	%
Percent error for 10% YTM	%	%