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A 4-year 12% coupon bond has a yield of 10%. a) What are its Macaulay Duration,...

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Accounting

A 4-year 12% coupon bond has a yield of 10%.

a) What are its Macaulay Duration, Modified duration, andconvexity

b) What is the actual price change, Modified Duration predictedprice change and Modified Duration + convexity predicted change inprice for an increase of 50 basis point in the yield.

Assume a flat term structure before and after the increase andannual coupons.

Answer & Explanation Solved by verified expert
3.7 Ratings (672 Votes)
ANSWER y 10 N 4 Assume FV 100 FV 100 y 10 N 4 PMT 12 compute PV PV 120101 11104 1001104 106339731 Macaulay Duration D 3420934 Modified Duration MD D1 y 3420934110 3109940    See Answer
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Transcribed Image Text

A 4-year 12% coupon bond has a yield of 10%.a) What are its Macaulay Duration, Modified duration, andconvexityb) What is the actual price change, Modified Duration predictedprice change and Modified Duration + convexity predicted change inprice for an increase of 50 basis point in the yield.Assume a flat term structure before and after the increase andannual coupons.

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