A newly issued bond has a maturity of 10 years and pays a 7.5% coupon rate (with coupon payments coming once annually). The bond sells at par value.
a. What are the convexity and the duration of the bond? Use the formula for convexity in footnote 7. (Round your answers to 3 decimal places.)
Convexity
Duration years
b. Find the actual price of the bond assuming that its yield to maturity immediately increases from 7.5% to 8.5% (with maturity still 10 years). Assume a par value of 100. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Actual price of the bond %
c. What percentage price change would be predicted by the duration rule formula103.mml What is the percentage error of that rule? (Negative answers should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Percentage price change %
Percentage error %
d. What percentage price change would be predicted by the duration-with-convexity rule formula105.mml What is the percentage error of that rule? (Negative answers should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Percentage price change %
Percentage error %
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A newly issued bond has a maturity of 10 years and pays a 7.5% coupon rate (with coupon payments com...
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