1. Consider a 3-year coupon bond with 8% annual coupon payments and a face value of $100. The term structure (spot rates) are as shown below. Provide the information in the table as requested and show any relevant calculations in your blue book: Maturity Spot Rate Discount PV Bond Bond Cash Flows Duration Calculation Convexity Calculation Factor Cash Flows 1 2.5% 8 2 3.0% 8 3 3.5% 108 Ytm = 3.45% a) Calculate the discount factor for each year. b) Calculate the PV of each cash flow and the PV of the bond. c) Calculate the delta (A$) of the bond. d) Calculate the dollar convexity (R$) of the bond. e) Assume the term structure shifts up by 200 bps. Estimate the change in the bond's price based solely on its duration. f) For the same 200 bps upward shift in term structure, estimate the change in the bond's price using the convexity correction. For convenience, the equation is: AP = -4$ (123)+urs ( | iki) 2 : = + +r, 1+r 1. Consider a 3-year coupon bond with 8% annual coupon payments and a face value of $100. The term structure (spot rates) are as shown below. Provide the information in the table as requested and show any relevant calculations in your blue book: Maturity Spot Rate Discount PV Bond Bond Cash Flows Duration Calculation Convexity Calculation Factor Cash Flows 1 2.5% 8 2 3.0% 8 3 3.5% 108 Ytm = 3.45% a) Calculate the discount factor for each year. b) Calculate the PV of each cash flow and the PV of the bond. c) Calculate the delta (A$) of the bond. d) Calculate the dollar convexity (R$) of the bond. e) Assume the term structure shifts up by 200 bps. Estimate the change in the bond's price based solely on its duration. f) For the same 200 bps upward shift in term structure, estimate the change in the bond's price using the convexity correction. For convenience, the equation is: AP = -4$ (123)+urs ( | iki) 2 : = + +r, 1+r