Question: MLK Bank has an asset portfolio that consists of $240 million of 15-year, 9-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?
a-2. What will be the new prices if market yields change immediately by ± 2.00 percent?
b-1. The duration of these bonds is 8.7862 years. What are the predicted bond prices in each of the four cases using the duration rule
b-2. What is the amount of error between the duration prediction and the actual market values?