Answer the questions for the bond below, which pays interests semi-annually. The modified duration is 3.9944...

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Answer the questions for the bond below, which pays interestssemi-annually. The modified duration is 3.9944 years and convexitymeasure is 19.7636 years. (Assume par value is $1000). Coupon rate:9%, current yield to maturity: 8%, maturity: 5 years. (1) Calculatethe price value of a basis point if the new yield to maturitybecomes 8.01% (2) Calculate the actual price of the bond for a50-basis-point increase in interest rates (yield changes from 8% to8.5%) (3) Using duration, estimate the approximate price of thebond for a 50-basis point increase in interest rates (yield changesfrom 8% to 8.5%) (4) Using both duration and convexity measure,estimate the approximate price of the bond for a 50-basis-pointincrease in interest rates (yield changes from 8% to 8.5%) (5)Compare your results in (3) and (4) and explain which is closer tothe actual price in (2)

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The percentage change in Price of a bond is given by Price change duration change in yield 12 Convexity change in yield2 The above formula will be used Part 1 As the new yield is See Answer

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Answer the questions for the bond below, which pays interestssemi-annually. The modified duration is 3.9944 years and convexitymeasure is 19.7636 years. (Assume par value is $1000). Coupon rate:9%, current yield to maturity: 8%, maturity: 5 years. (1) Calculatethe price value of a basis point if the new yield to maturitybecomes 8.01% (2) Calculate the actual price of the bond for a50-basis-point increase in interest rates (yield changes from 8% to8.5%) (3) Using duration, estimate the approximate price of thebond for a 50-basis point increase in interest rates (yield changesfrom 8% to 8.5%) (4) Using both duration and convexity measure,estimate the approximate price of the bond for a 50-basis-pointincrease in interest rates (yield changes from 8% to 8.5%) (5)Compare your results in (3) and (4) and explain which is closer tothe actual price in (2)