Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The bonds have a 7% coupon rate. Interest is paid annually, and the required rate of return is 6 percent for these bonds. A 12-year, 8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5 years. If interest rates decline by 50 basis points, what will be the percent change in price for this bond? a. +4.48% b. +4.61% c. +8.48% d. +8.96% e. +17.92%

Question

Jimmy Sandoval · Accepted Answer

M  o  d  i  f  i  e  d     d  u  r  a  t  i  o  n     =            D      u      r      a      t      i      o      n              (      1      +      47      m      )        =      9.5    1.06    =  8.96%Every 1% change in ytm, price of bond changes by 8.96% in opposite direction So for 0.5% fall in interest rates, price of bond increases by   8.96  ×  0.5  =  4.48%

Answered question

Answer & Explanation

New Questions in Other