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referring to attached (task 2) ...

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Finance

referring to

image

attached (task 2)

image

You just purchased a $1000 par value bond maturing on 30th June 2025. Suppose todays date (settlement date) is 30th June 2019 and the yield to maturity is 6%. The bond pays coupons semi-annually and the annual coupon rate is 7%. 1 Given all these inputs, do the following. a) Compute the bonds annualized convexity. b) Suppose the yield to maturity increases to 10%. Compute the approximate percentage price change using only the modified duration (from Task 2 (b)). Approx. percentage price change = Dy100 c) Continue with the situation in part ( b ), but now calculate the approximate percentage price change using both modified duration and annualized convexity (from part ( a )).

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