Question

a) For the bond with a coupon of 5.5% paid annually, with 10 years to maturity...

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
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?

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Answer #1

to calculate duration modified duration convexity and price change referthe attached images with detailed calculations.

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