Consider the following information and assume that both bonds pay interest semi-annually, so that below are semiannual...

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Finance

Consider the following information and assume that both bondspay interest semi-annually, so
that below are semiannual bond equivalent yields.
A
Coupon 8
YTM 8
Maturity 2
Par 100
Price 100
1. Calculate the Macaulay duration of bond A.
2. Calculate the modified duration of bond A.
3. Compute the approximate modified duration for bonds A B usingthe shortcut formula by changing yields by 20 basis points andcompare your answers with those calculated in the last question.Hint: calculate the price of the bond when interest rate increaseby 20 bsp and decrease by 20 bsp. Then plug in the formula we havein class.
4. Compute the approximate convexity measure for both bonds A(use 10 bsp as the change in interest rate) Hint: calculate theprice of the bond when interest rate increase by 10 bsp anddecrease by 10 bsp. Then plug in the formula we have in class.
Round to 4 decimal places.

Answer & Explanation Solved by verified expert

3.9 Ratings (575 Votes)

Solution1 Given that Coupon payment 1000082 40Number of years 22 4 Price 100and Par value 100Period nCPV 4CPVCPVn141104 0961538462384622411042 0924636982739653411043 See Answer

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