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kherson [118]
3 years ago
5

Consider a bond with a coupon of 5.2 percent, eight years to maturity, and a current price of $1,053.10. Suppose the yield on th

e bond suddenly increases by 2 percent. a. Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
1 answer:
Sindrei [870]3 years ago
7 0

$936.41 is the new price of the bond.

<u>Explanation:</u>

<u>New price of the bond after using the duration is calculated as follows:</u>

Purchase date = 01 june 2016, Maturity date = 01 june 2024, frequency = 1

Face value = $10000, Annual coupon rate = 5.20 percent, Yield to maturity = 6.40 percent,

NPER = 6.688257877

PMT = $52.00

New price of the bond = $936.41 ( rounded to two decimal places)

Note: I have used an excel formula so as to calculate the new price of the bond.

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