You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is ________.

A) $1,098.45
B) $1,104.56
C) $1,113.41
D) $1,124.22

Question

Arthur Tompkins · Accepted Answer

Final Answer : D, Explanation :  ΔP/P = −D*(Δy) + 0.5(Convexity)(Δy) 2 D* = D/(1 + y) = 10/1.1 = 9.091−D*(Δy) = −9.091 × −1.25% = 11.36%0.5(Convexity)(Δy) 2  = 0.5(135.5)(−1.25%) 2  = 1.0586%ΔP/P = = −D*(Δy) + 0.5(Convexity)(Δy) 2  = 11.36% + 1.0586% = 12.42%Since the bond's coupon rate was equal to its original yield to maturity, the original price was $1,000.New price = $1,000 × 1.12422 = $1,124.22

You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is ________.

A) $1,098.45
B) $1,104.56
C) $1,113.41
D) $1,124.22

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Learning Objectives

Learning Objectives

Related questions

You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is ________.A) $1,098.45B) $1,104.56C) $1,113.41D) $1,124.22

Definitions

Learning Objectives

Learning Objectives

Related questions

You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is ________.

A) $1,098.45
B) $1,104.56
C) $1,113.41
D) $1,124.22