Revision as of 00:23, 20 November 2023 by Admin (Created page with "Krishna buys an n-year 1000 bond at par. The Macaulay duration is 7.959 years using an annual effective interest rate of 7.2%. Calculate the estimated price of the bond, using the first-order modified approximation, if the interest rate rises to 8.0%. <ul class="mw-excansopts"><li>940.60</li><li>942.88</li><li>944.56</li><li>947.03</li><li>948.47</li></ul> {{soacopyright | 2023 }}")
Nov 20'23
Exercise
Krishna buys an n-year 1000 bond at par. The Macaulay duration is 7.959 years using an annual effective interest rate of 7.2%.
Calculate the estimated price of the bond, using the first-order modified approximation, if the interest rate rises to 8.0%.
- 940.60
- 942.88
- 944.56
- 947.03
- 948.47
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: A
[[math]]
\begin{array}{l}{{\overline{{{v}}}=\frac{7.959}{1.072}=7.425}}\\ {{P(0.08)=P(0.072)\bigl[1-(\Delta i)\overline{{{v}}}\bigr]}}\\ {{P(0.08)=1000\bigl[1-(0.008)(7.425)\bigr]=940.60}}\end{array}
[[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.