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A three year bond with face value of $1000 pays annual coupons of 4 percent and...

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Finance

A three year bond with face value of $1000 pays annual couponsof 4 percent and has a yield- to-maturity of 5 percent. What is theprice, duration, and convexity of the bond?
Suppose the yield increases to 6 percent. Use the duration rule toestimate the new price. Use duration and convexity to estimate thenew price. Use the bond price equation to compute the exact newprice.

Answer & Explanation Solved by verified expert
4.3 Ratings (848 Votes)
K NBond Price Coupon1 YTMk Par value1 YTMNk1K 3Bond Price 410001001 5100k 10001 51003k1Bond Price 97277PeriodCash FlowDiscounting factorPV Cash FlowDuration Calc0972771YTMumber of coupon payments in the yearperiodcashflowdiscounting    See Answer
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A three year bond with face value of $1000 pays annual couponsof 4 percent and has a yield- to-maturity of 5 percent. What is theprice, duration, and convexity of the bond?Suppose the yield increases to 6 percent. Use the duration rule toestimate the new price. Use duration and convexity to estimate thenew price. Use the bond price equation to compute the exact newprice.

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