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A 10-year, semiannual payment bond with a par value of $1,000 has a 7% coupon annual rate.

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solution


Question

A 10-year, semiannual payment bond with a par value of $1,000 has a 7% coupon annual rate. Currently, this bond is a par bond on the market. Use the above information to answer the following questions.;a)What is the duration of this par bond?;b) If the Federal Reserve announces a Quantitative Easing and, therefore, pushing interest rates to unexpectedly fall. This bond?s yield to maturity falls by 1%. What is the new duration?;c) Use the information in duration calculated in b) to calculate the bond price volatility;d) According to the above, what can you conclude about the relation between yield to maturity and interest rate risk?

 

Paper#30679 | Written in 18-Jul-2015

Price : $37
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