Question

a) For the bond with a coupon of 5.5% paid annually, with 10 years to maturity and a YTM of 6.10, calculate the duration and modified duration. b) For the bond described in a) above, calculate the convexity. c) Calculate the price change for a 50 basis point drop in yield using duration plus convexity. (5 points) d) Samantha and Roberta are discussing the riskiness of two treasury bonds A& B with the following features: Bond Price Modified Duration A 90 4 B 50 6 Samantha claims that Bond B has more price volatility because of its higher modified duration. Roberta disagrees and claims that Bond A has more price volatility despite its lower modified duration. Who is right? (5 points)

Answer #1

Answer of question 1 has been answered :

Duration of the bond is 7.86 years

Modified Duration is 7.81

a) For the bond with a coupon of 5.5% paid annually, with 10
years to maturity and a YTM of 6.10, calculate the duration and
modified duration.
b) For the bond described in a) above, calculate the
convexity.
c) Calculate the price change for a 50 basis point drop in yield
using duration plus convexity.
d) Samantha and Roberta are discussing the riskiness of two
treasury bonds A& B with the following features:
Bond
Price
Modified Duration
A
90
4...

A 25-year semiannual bond has 10% coupon rate and par value
$1,000. The current YTM of the bond is 10%. Its Macaulay duration
is 9.58 years and convexity is 141.03.
(1) What is the bond’s modified duration? (2 points)
(2) What is the percentage price change if interest rate were to
fall 125 basis points considering both duration and convexity? (4
points)
(3) What is the estimated price with 125 basis points decrease
in yield? (4 points)

A bond with a coupon of 11.5% and 10 years remaining until
maturity has a modified duration of 6.48 and convexity of 63. The
bond is quoted at $115.75. If the required yield rises by 145 basis
points, determine the predicted price of the bond. Please show
work!

Bond A has a 8% coupon rate, paid annually. Maturity is in three
years. The bond sells at par value $1000 and has a convexity of
9.3. The duration of the bond is 2.78. If the interest rate
increases from 8% to 9.5%, what price would be predicted by the
duration-with-convexity rule?

A bond has a 25-year maturity, 10% coupon, 10% yields, $1000
face value, a duration of 10 years and a convexity if 135.5.
Calculate the new value of the bond (in $), based on modified
duration and convexity, if interest rates were to fall by 125 basis
points.

Bond A has a 8% coupon rate, paid annually. Maturity is in three
years. The bond sells at par value $1000 and has a convexity of
9.3. The duration of the bond is 2.78. If the interest rate
increases from 8% to 9.5%, what price would be predicted by the
duration-with-convexity rule? 963.43 965.35 962.43 964.42

You have a 25-year maturity, 10.4% coupon paid semi-annually,
10.4% YTM bond with a duration of 10 years and a convexity of
113.9976. If the interest rate were to fall 129 bps:
a) Show the total change in the bond price, Δ B, as a result of
the decline in yields.
b) Show the bond price change due to duration, Bd.
c) Show the bond price change due to convexity, Bc.
d) Verify the accuracy of your responses by showing:...

A bond has a 25-year maturity, 10% coupon, 10% yields, $1000
face value, a duration of 10 years and a convexity if 135.5.
Calculate the new value of the bond (in $), based on modified
duration and convexity, if interest rates were to fall by 125 basis
points.
Please show the working/formulas if done in excel.

Consider a 3-year 8% semiannual coupon bond. The YTM of this
bond is 6%. Compute the following
a) Macaulay Duration (use Mac Duration
b) Modified Duration
c) Effective duration (assume a ±50 BP change of Yield)
d) Convexity Factor (use
e) Effective Convexity Factor (assume a ±50 BP change of
Yield)

(excel) Consider a 8% coupon bond
making annual coupon payments with 4 years until maturity
and a yield to maturity of 10%.
What is the modified duration of this bond?
If the market yield increases by 75 basis points, what is the
actual percentage change in the bond’s
price? [Actual, not approximation]
Given that this bond’s convexity is 14.13, what price would you
predict using the duration-with-convexity
approximation for this bond at this new yield?
What is the percentage error?

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