Consider a 2-year, risk-free bond with a coupon rate of 6% (annual coupons) and a face value of $1,000. If the yield on the above bond is 6%: a. What is the Macaulay duration of this bond? b. If the yield increases to 7% immediately, what does the duration approximation predict will be the percentage change in the bond price? c. If the yield decreases to 5% instead, what is the approximate percentage change in the bond price implied by the bond’s duration? d. After receiving the first coupon payment in year 1, the yield increases to 7% and you decide to sell the bond. What is your annualized HPR?

Consider a 2-year, risk-free bond with a coupon rate of 6% (annual coupons) and a face value of $1,000. If the yield on the above bond is 6%: a. What is the Macaulay duration of this bond? b. If the yield increases to 7% immediately, what does the duration approximation predict will be the percentage change in the bond price? c. If the yield decreases to 5% instead, what is the approximate percentage change in the bond price implied by the bond’s duration? d. After receiving the first coupon payment in year 1, the yield increases to 7% and you decide to sell the bond. What is your annualized HPR?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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