Problem_Set_9__09

Problem_Set_9__09 - Princeton University Department of...

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Princeton University Department of Economics Economics 362 Fall Term 2009-2010 Problem Set 9 Bond Market – Term Structure 1. A nine-year bond has a yield of 10% and a duration of 7.194 years. If the market yield rises by 50 basis points, what is the percentage change in the bond’s price? 2. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 6%. What is the duration if the yield to maturity is 10%? 3. Find the duration of the bond in problem 2 with a yield of 6% if the coupons are paid semiannually. (Hint: Use Rule 8, in text p. 468.) 4. The following questions are from past CFA examinations: a) A 6% coupon bond paying interest annually has a modified duration of 10 years, sells for $800, and is priced at a yield to maturity of 8%. If the YTM increases to 9%, the predicted change in price, using the duration concept, decreases by: i) $76.56 ii) $75.92 iii) $77.67 iv) $80.00 b) A 6% coupon bond with semiannual coupons has a convexity (in years) of 120, sells for 80% of par, and is priced at a yield to maturity of 8%. If the YTM increases to 9.5%, the predicted contribution to the percentage change in price, due to convexity, would be: i) 1.08% ii) 1.35% iii) 2.48% iv) 7.35% 1
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Problem_Set_9__09 - Princeton University Department of...

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