1. Calculate the requested measures in parts (a) through (g) for bonds A and B (assume that each bond pays interest semiannually):

Bond A . Bond B

Coupon 4% 4.5%

Yield to maturity 4% 5%

Maturity (years) 3 10

Par $100.00 $100.00

Price $100.00 ?

(a) What is the price of bond B?

(b) What is the price value of a basis point for bonds A and B?

(c) Compute the Macaulay duration for the two bonds.

(d) Compute the modified duration for the two bonds.

(e) Compute the approximate modified duration for bonds A and B using the shortcut formula by changing yields by 10 basis points and compare your answers with those calculated in part (d).

(d). Compute the convexity measure for the two bonds.

(g) Compute the approximate convexity measure for bonds A and B using the shortcut formula by changing yields by 10 basis points and compare your answers to the convexity measure calculated in part (f).