This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: (c) Show that if the yield falls to 8% the future value of all payments four years from today is approximately equal to the future value in (b). Assume all coupons are reinvested at 8%. 3. Duration and Bond Price Sensitivity (a) Compute the duration of a semiannual coupon bond with a 2year maturity. The bond trades at par and has an 8% annualized coupon. (b) Use the duration in (a) to calculate the change in bond price if the semiannual yield is 4.25%. (c) Use the duration in (a) to calculate the change in bond price if the effective annual bond yield is 8.5%. 2 4. Recommended Problems from the Textbook (BKM) Match Duration to Holding Period: Chapter 16 Problem 12 (P.567) Duration and Convexity: Chapter 16 Problem 16 (P.568) (Note: In the final exam, you are not required to use a financial calculator. Every calculation problem in the exam can be solved by using the basic math functions of a calculator.) Convexity: Chapter 16 Problem 21 (P.569)...
View
Full Document
 Spring '11
 Darwin
 duration, FINA, $1000, 2year, 4.25%

Click to edit the document details