1. Calculate the requested measures in parts (a) through (g) for bonds A and B assume that each bond pays interest semiannually): Ronda Bond A Bond B Coupon 4% 4.5% Yield to maturity 4% 5% Maturity (years) 3 10 Par $100.00 $100.00 Price S100.00 ? (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. (c) 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). (1) Compute the convexity measure for the two bonds. (8) 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). 2. Answer the below questions for bonds A and B (Same bonds as in question 1). 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) Calculate the actual price of the bonds for a 200-basis- point decrease in interest rates (yields). (b) Using duration, estimate the price of the bonds for a 200- basis-point decrease in interest rates. (c) Using both duration and convexity measures, estimate the price of the bonds for a 200-basis-point decrease in interest rates. (d) Comment on the accuracy of your results in parts b and c, and state why one approximation is closer to the actual price derived in (a) than the other. 2 Tollowing to TSTY bonohmo m ilable and their 1. Calculate the requested measures in parts (a) through (g) for bonds A and B assume that each bond pays interest semiannually): Ronda Bond A Bond B Coupon 4% 4.5% Yield to maturity 4% 5% Maturity (years) 3 10 Par $100.00 $100.00 Price S100.00 ? (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. (c) 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). (1) Compute the convexity measure for the two bonds. (8) 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). 2. Answer the below questions for bonds A and B (Same bonds as in question 1). 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) Calculate the actual price of the bonds for a 200-basis- point decrease in interest rates (yields). (b) Using duration, estimate the price of the bonds for a 200- basis-point decrease in interest rates. (c) Using both duration and convexity measures, estimate the price of the bonds for a 200-basis-point decrease in interest rates. (d) Comment on the accuracy of your results in parts b and c, and state why one approximation is closer to the actual price derived in (a) than the other. 2 Tollowing to TSTY bonohmo m ilable and their
