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A bond with face value = 10,000 currently trades at par. Its Macaulay duration is 3.36...

A bond with face value = 10,000 currently trades at par. Its Macaulay duration is 3.36 years and its convexity is 53.35. Suppose yield currently is 2.97%, and is expected to change to 3.21%. Calculate the approximate dollar change in price using both duration and convexity. Assume annual compounding. Round your answer to 2 decimal places.

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Answer #1

  

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Modified Duration = Duration / (1+YTM)

= 3.36 / (1+0.0297)

= 3.26308633582

Change in Price = (-Modified Duration * PRice *Change in YTM) + (1/2 * Convexity *PRice* (Change in YTM)^2)

= (-3.26308633582 * 10000 *0.0024) + (1/2 * 53.35 * 10,000 * 0.0024^2)

= -76.78

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