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CACULATIONS 5

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solution


Question

You have purchased a bond for $973.02. The bond has a coupon rate of 6.4%, pays interest annually, has a face value of $1,000, 4 years to maturity, and a yield to maturity of 7.2%. The bond's duration is 3.6481 years. You expect that interest rates will fall by.3% later today.;Use the modified duration to find the approximate percentage change in the bond's price. Find the new price of the bond from this calculation.;Use your calculator to do the regular present value calculations to find the bond's new price at its new yield to maturity.;What is the amount of the difference between the two answers? Why are your answers different? Explain the reason in words and illustrate it graphically.

 

Paper#76949 | Written in 18-Jul-2015

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