You are the portfolio manager of a large company that invests in many securities including corporate bonds. You have been assigned the task of bond portfolio management. You are provided with the following data in relation to bonds: Maturity period 7 years Coupon rate 12% Par value $1,000 Coupons on bonds are paid annually Yield to maturity of bonds 8% Required: i) Calculate the Macualay’s duration, modified duration and convexity ii) Calculate the change in bond price when yield to maturity changes by one percent using modified duration iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity is considered

Principles of Accounting Volume 1
19th Edition
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax
Chapter13: Long-term Liabilities
Section: Chapter Questions
Problem 3EA: Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the...
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You are the portfolio manager of a large company that invests in many securities including corporate bonds. You
have been assigned the task of bond portfolio management. You are provided with the following data in relation
to bonds:
Maturity period 7 years
Coupon rate 12%
Par value $1,000
Coupons on bonds are paid annually
Yield to maturity of bonds 8%
Required:
i) Calculate the Macualay’s duration, modified duration and convexity
ii) Calculate the change in bond price when yield to maturity changes by one percent using modified
duration
iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity
is considered

 

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ISBN:
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