you have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. if the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is .

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15-11-2022
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you have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. if the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is .

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contexto1005 contexto1005 · Answer 1 · 2022-11-18T12:12:37+01:00

If the interest rate were to fall 125 basis points your predicted new price for the bond is $1,124.21

Modified Duration = 10/1.10 = 9.09 years

Change in Bond Price = - Mod.Duration(Change in YTM) + 0.50(Convexity)(Change in YTM)2

Change in Bond Price = -9.09(-0.0125) + 0.50(135.50)(-0.0125)2

Change in Bond Price = 12.421%

New Bond Price = (1.12421)(1,000)

New Bond Price = $1,124.21

The return on your investment in a bond is referred to as yield in general. Price and yield have a negative relationship: Bond yields decrease as bond prices rise and vice versa. The annual net profit an investor receives from an investment is referred to as yield. The percentage that a lender charges for a loan is known as the interest rate. The yield on new debt investments of all types reflects interest rates in effect at the time the investments are made.

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