A bond with a coupon rate of 5.25 percent, semi-annual payments, face value of $1000,...
80.2K
Verified Solution
Link Copied!
Question
Accounting
A bond with a coupon rate of 5.25 percent, semi-annual payments, face value of $1000, and 10-year maturity is trading at a YTM of 2.50%. Because of some announcements made by the Fed Chairman, this bond now starts trading at a YTM of 5.50%. You are calculating the interest risk of the bond. You do this by first considering a 1% increase in YTM from 2.50% to 3.50%. Then you do the same, considering a change in YTM from 5.50% to 6.50%. Your calculations show that:
A.
None of the above
B.
The interest rate risk of the bond increases, from -7.68% to -7.32%
C.
The interest rate risk of the bond increases, from -14.11% to -12.70%
D.
The interest rate risk of the bond declines, from 14.11% to 12.70%
E.
The interest rate risk of the bond declines, from 7.68% to 7.32%
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
