CHAPTER 18 PROBLEM 5

FINANCE  Investment Analysis and Portfolio Management CHAPTER 18 PROBLEM 5
 A bond for the Chelle Corporation has the following characteristics 
     Maturity--12 years   
Coupon--10%
 Yield to maturity--9.50%  
 Macaulay duration--5.7 years
 Convexity--48 
 Noncallable 
  a. Calculate the approximate price change for this bond using only its duration assuming its   yield   to   maturity   increased   by   150   basis   points.   Discuss   the   impact   of   the   calculation   including the convexity effect. 
  b. Calculate the approximate price change for this bond (using only its duration) if its yield   to maturity declined by 300 basis points. Discuss (without calculations) what would happen   to your estimate     of the price change if this was a callable bond.

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