Question

1. A bond has just been issued. The bond has an annual coupon rate of 9% and coupons are paid annually. The bond has a face value of $1,000 and will mature in 10 years. The bond’s yield to maturity is 12%.
   1. Calculate the price of the bond at the yield to maturity of 12%.
   2. Calculate a new price for the bond if the yield to maturity decreases to 10.5%.
   3. Calculate the actual change in the bond’s price as the yield to maturity changes from 12% to 10.5%.
   4. Calculate the bond’s duration at a yield to maturity of 12%.
   5. Calculate the bond’s duration at a yield to maturity of 10.5%.
   6. Use the bond’s duration to calculate the approximate bond price change as the yield to maturity changes from 12% to 10.5%.
   7. Use the bond’s modified duration to calculate the approximate bond price change as the yield to maturity changes from 12% to 10.5%.

Answer 1

1
=PV(12%,10,-9%*1000,-1000)=830.493309147674

2
=PV(10.5%,10,-9%*1000,-1000)=909.778408893525

3
=PV(10.5%,10,-9%*1000,-1000)-PV(12%,10,-9%*1000,-1000)=79.2850997458506

4
=DURATION(DATE(2000,1,1),DATE(2010,1,1),9%,12%,1,1)=6.68412421171571

P.S.: I am not allowed to answer more than 4 questions