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A 5-year, 8% (annual coupon payment) bond is trading to yield 7%, calculate or approximate...

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Finance

A 5-year, 8% (annual coupon payment) bond is trading to yield 7%, calculate or approximate the percentage price change using the conventional approach and the duration/convexity approach if yield decreases by 100 bps to 6%. Note, this question requires the calculation of

  1. Using the conventional valuation approach for the percentage price change (2 points)
  2. Duration or modified duration; (4 points)
  3. Convexity or dollar convexity (4 points)
  4. The percentage price change using both the duration measure and convexity measure. (2 points)

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