MLK Bank has an asset portfolio that consists of $120 million of 15-year, 12-percent-coupon, $1,000 bonds with annual coupon payments that sell at par.   a-1. What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))                   Bonds’ New Price   At + 0.10% $       At − 0.10%         a-2. What will be the new prices if market yields change immediately by ± 2.00 percent? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))                   Bonds’ New Price   At + 2.0% $       At − 2.0%         b-1. The duration of these bonds is 7.6282 years. What are the predicted bond prices in each of the four cases using the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))                   Bonds’ New Price   At + 0.10% $       At − 0.10%       At + 2.0%       At − 2.0%         b-2. What is the amount of error between the duration prediction and the actual market values? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))                   Amount of Error   At + 0.10% $       At − 0.10%       At + 2.0%       At − 2.0%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Question

MLK Bank has an asset portfolio that consists of $120 million of 15-year, 12-percent-coupon, $1,000 bonds with annual coupon payments that sell at par.

 

a-1.

What will be the bonds’ new prices if market yields change immediately by ± 0.10 percent? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

 

                Bonds’ New Price
  At + 0.10% $    
  At − 0.10%    
 

 

a-2.

What will be the new prices if market yields change immediately by ± 2.00 percent? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

 

                Bonds’ New Price
  At + 2.0% $    
  At − 2.0%    
 

 

b-1.

The duration of these bonds is 7.6282 years. What are the predicted bond prices in each of the four cases using the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

 

                Bonds’ New Price
  At + 0.10% $    
  At − 0.10%    
  At + 2.0%    
  At − 2.0%    
 

 

b-2.

What is the amount of error between the duration prediction and the actual market values? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

 

                Amount of Error
  At + 0.10% $    
  At − 0.10%    
  At + 2.0%    
  At − 2.0%    
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