You have a 25-year maturity, 9.1% coupon, 9.1% yield bond with a duration of 10 years and a convexity of 134.6. If the i...
You have a 25-year maturity, 9.1% coupon, 9.1% yield bond with a duration of 10 years and a convexity of 134.6. If the interest rate were to fall 116 basis points, your predicted new price for the bond (including convexity) is _________.
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$1,097.24
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$1,091.66
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$1,115.40
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$1,106.30
Homework Answers
As yield is equal to coupon, Original Price=Par=1000
New Price=Original Price*(1-Duration/(1+ytm)*change in interest
rate+0.5*Convexity*(change in interest rate)^2)
=1000*(1-10/1.091*(-1.16%)+0.5*134.6*(1.16%)^2)
=1115.40
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