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    Chapter 16

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    Josua
    Janet Meer is a fixed income portfolio manager considering purchasing a newly issued 10-year, 7% coupon corporate bond priced at par. The document calculates the bond's modified duration as 7.35491871 and estimates what the bond price would be if yields rose to 8% (around $932) or fell to 6% (around $1074).

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    © All Rights Reserved
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    Chapter 16

    Uploaded by

    Josua
    69 views3 pages
    Janet Meer is a fixed income portfolio manager considering purchasing a newly issued 10-year, 7% coupon corporate bond priced at par. The document calculates the bond's modified duration as 7.35491871 and estimates what the bond price would be if yields rose to 8% (around $932) or fell to 6% (around $1074).

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    Chapter16

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    Janet Meer is a fixed income portfolio manager considering purchasing a newly issued 10-year, 7% coupon corporate bond priced at par. The document calculates the bond's modified duration as 7.35491871 and estimates what the bond price would be if yields rose to 8% (around $932) or fell to 6% (around $1074).

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    69 views3 pages

    Chapter 16

    Uploaded by

    Josua
    Janet Meer is a fixed income portfolio manager considering purchasing a newly issued 10-year, 7% coupon corporate bond priced at par. The document calculates the bond's modified duration as 7.35491871 and estimates what the bond price would be if yields rose to 8% (around $932) or fell to 6% (around $1074).

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
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    Janet Meer is a fixed income portfolio manager.

    Noting that the current shape of the yield curve i


    of newly issued 7% coupon, 10-year maturity, option-free corporate bond priced at par.

    a. Calculate modified duration o 7.35491871 7.106201651 Time


    b. What would be the price of the bond, if YTM rises to 8%?
    Using modified duration o 928.94 928.94 1
    Convexity adjustment 3.21 3.214989461 2
    New price 932.15 932.15 3
    4
    Price by formula 932.05 932.05 5
    6
    c. What would be the price of the bond, if YTM falls to 6%? 7
    Approximate 1074.28 1074.28 8
    Formula 1074.39 1074.39 9
    10
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    shape of the yield curve is flat, she considers the purchase
    d priced at par.

    Cashflow CF/(1+r)^t tCF/(1+r)^t tCF/(1+r)^(t+1) t(t+1)CF/(1+r)^(t+2)

    35 33.82 33.82 32.6729 63.14


    35 32.67 65.35 63.1360 183.00
    35 31.57 94.70 91.5014 353.63
    35 30.50 122.00 117.8762 569.45
    35 29.47 147.35 142.3626 825.29
    35 28.47 170.84 165.0581 1116.33
    35 27.51 192.57 186.0558 1438.11
    35 26.58 212.64 205.4447 1786.48
    35 25.68 231.13 223.3094 2157.58
    35 24.81 248.12 239.7310 2547.87
    35 23.97 263.70 254.7866 2954.05
    35 23.16 277.95 268.5497 3373.09
    35 22.38 290.93 281.0907 3802.19
    35 21.62 302.71 292.4764 4238.79
    35 20.89 313.37 302.7706 4680.51
    35 20.18 322.96 312.0341 5125.20
    35 19.50 331.54 320.3249 5570.87
    35 18.84 339.17 327.6981 6015.71
    35 18.21 345.90 334.2063 6458.09
    1035 520.16 10403.11 10051.3177 203939.78

    1000.00 14709.84 14212.40 257199.16 257.20


    7.35491871 7.10620165 64.2997892185953 64.2997892

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