ric_ps2

# ric_ps2 - Riccardo Colacito Finance Division Problem Set 2...

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Unformatted text preview: Riccardo Colacito Finance Division Problem Set 2 Investments Due date: Thursday March 25 2010 in class 1. A bond has an annualized coupon rate of 9.80%, 4 years to maturity, and sells at an annualized yield to maturity of 11.50%. The bond pays interest semi-annually and has a par value of \$1,000. (a) Calculate the duration of the bond. (b) What is the modifled duration of the bond? (c) If the bond’s yield changes to 11.65%, what is the estimated percentage change in the bond’s price that would occur? (d) What would be the new price of the bond? 2. Consider the following three bonds. You are investigating how the bonds would react to changes in interest rates. Bond A Zero-Coupon Bond Bond B Face Value \$1,000 \$1,000 \$1,000 Years to Maturity 3 2.85 3 Coupon rate 5.50% 0% 8.75% Yield to maturity 4.80% 4.80% 4.80% Assume that coupons are paid once a year. (a) Find the duration of each bond....
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ric_ps2 - Riccardo Colacito Finance Division Problem Set 2...

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