Q4. For bond A in Q3: (a) Calculate the actual price of the bond for a 100-basis-point increase in interest rates from 8% to 9%. (lower half of ppt #34, LN3. It is NOT approximated, but precisely calculated.) (b) Using duration obtained in Q3c, estimate the new price if yield goes up from 8% to 9% (upper half of ppt #35, LN3) (c) Using both duration and convexity measures obtained in Q3c and Q3e, estimate the new price if yield goes up from 8% to 9% (lower half of ppt #35, LN3). (d) Comment on the accuracy of your estimation results in Q4b and Q4c, and state why one approximation is closer to the actual price than the other. (e) Without working through calculations, indicate whether the duration of the bond would be higher or lower if the yield to maturity is 10% rather than 8%. Q3. Calculate the requested measures in parts (a) through (f) for bonds A (assume that each bond pays interest semiannually): Bond A Coupon 8% Yield to maturity 8% Maturity (years) 2 Par $100.00 Price $100.00 (a) The dollar value of a basis point (ppt #13, LN03) (b) Macaulay duration (using the bond-rate function in compact form -- on ppt #17, LN03). (c) Modified duration (using the relation between modified duration and Macaulay duration, Eq. 4.7 on ppt #15, LN03). (d) The approximate duration by changing yields by+/-10 basis points (using the approximation method on ppt #20, LN03.) Compare your answers with Q3c. (e) Convexity measure (using the last equation compact form on ppt #30, LN03). (f) The approximate convexity measure by changing yields by +/-10 basis points (using the approximation method on ppt #31-32, LN3). Compare your answers with Q3e. Q4. For bond A in Q3: (a) Calculate the actual price of the bond for a 100-basis-point increase in interest rates from 8% to 9%. (lower half of ppt #34, LN3. It is NOT approximated, but precisely calculated.) (b) Using duration obtained in Q3c, estimate the new price if yield goes up from 8% to 9% (upper half of ppt #35, LN3) (c) Using both duration and convexity measures obtained in Q3c and Q3e, estimate the new price if yield goes up from 8% to 9% (lower half of ppt #35, LN3). (d) Comment on the accuracy of your estimation results in Q4b and Q4c, and state why one approximation is closer to the actual price than the other. (e) Without working through calculations, indicate whether the duration of the bond would be higher or lower if the yield to maturity is 10% rather than 8%. Q3. Calculate the requested measures in parts (a) through (f) for bonds A (assume that each bond pays interest semiannually): Bond A Coupon 8% Yield to maturity 8% Maturity (years) 2 Par $100.00 Price $100.00 (a) The dollar value of a basis point (ppt #13, LN03) (b) Macaulay duration (using the bond-rate function in compact form -- on ppt #17, LN03). (c) Modified duration (using the relation between modified duration and Macaulay duration, Eq. 4.7 on ppt #15, LN03). (d) The approximate duration by changing yields by+/-10 basis points (using the approximation method on ppt #20, LN03.) Compare your answers with Q3c. (e) Convexity measure (using the last equation compact form on ppt #30, LN03). (f) The approximate convexity measure by changing yields by +/-10 basis points (using the approximation method on ppt #31-32, LN3). Compare your answers with Q3e