Chapter 6 Chapter 6

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22 % Change in the price of the bond if YTM increases from 10% to 12%: = [(-1 )(Modified Duration)(Yield change in terms of percentage points)} + [(C/200) (Yield Chg in terms of percentage points) 2 ] = [{(-1)(3.791)(2)} + {(23.4376/200)(4)}] = - 7.582+ 0.47 = - 7.112 % Change in bond price if YTM decreases from 10% to 8%: = [{(-1)(3.791)(-2)} + {(23.4376/200)(4)} ] = 8.052 YTM Bond value As per PV method As per Mod. Duration method As per convexity method 8% 108.03 107.58 108.052 10% 100 100.00 100.00 12% 92.75 92.42 92.888 Q. No. 31 3 : Refer to Q.No.29 and Q.No.30. Fill in the blanks of the following table YTM (%) 8 9 10 11 12 As per PV method Bond value As per Mod. Duration method As per convexity method Answer: % Change in the price of the bond if YTM increases from 10% to 11%: = [(-1 )(Modified Duration)(Yield change in terms of percentage points)} + [(C/200) (Yield Chg in terms of percentage points) 2 ] = [{(-1)(3.791)(1)} + {(23.4376/200)(1)}] = - 3.6738 % Change in bond price if YTM decreases from 10% to 9%: = [{(-1)(3.791)(-1)} + {(23.4376/200)(1)} ] = 3.9082
23 YTM (%) Bond value As per PV method As per Mod. Duration method As per convexity method 8 108.03 107.582 108.0520 9 103.90 103.791 103.9082 10 100.00 100.00 100.0000 11 96.30 96.209 96.3262 12 92.75 92.418 92.888
Page 1 and 2: J B GUPTA CLASSES 98184931932, drja
Page 3 and 4: 3 Q. No. 3 : A company has outstand
Page 5 and 6: 5 • Present value of Rs.1,000 to
Page 7 and 8: 7 The current market rate on simila
Page 9 and 10: 9 Duration is the weighted average
Page 11 and 12: 11 Q. No. 19 : Find the current mar
Page 13 and 14: 13 (Rs.1,000) Bond B (Rs.1,000) Pre
Page 15 and 16: 15 EXPECTATION THEORY: As per this
Page 17 and 18: 17 Suppose you are interested in pu
Page 19 and 20: 19 Limitations of Modified Duration
Page 21: 21 Convexity is a better technique
Page 25 and 26: 25 = [(-1 )(Modified Duration)(Yiel
Page 27 and 28: 27 Answer (i) Stock value of bond =
Page 29 and 30: 29 Duration = ∑XW / ∑W = 34,064
Page 31 and 32: 31 Q. No. 37: An 18-years maturity
Page 33 and 34: 33 To achieve the target return, he
Page 35 and 36: 35 (c) Assuming that total earnings
Page 37 and 38: 37 Interest rate for 3 months = 27/
Page 39 and 40: 39 be issued at the third year. The
Page 41 and 42: 41 Q. 48 A 10 years maturity bond r
Page 43 and 44: 43 [1% change in YMT causes 1.81% c
Page 45 and 46: 45 The present value of bond princi
Page 47 and 48: 47 payable annually. The next inter
Page 49 and 50: 49 (a) Let YTM = r 260(1+r) 8 = 100

Chapter 6 Chapter 6

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