1. Find the Price and Macaulay's Duration of a bond with the following characteristics: a. Par $100 b. Coupon 5% c. Yield 8% d. Maturity 10 years e. Assume annual flows and annual YTM 2. Calculate the Modified Duration 3. Using the Modified Duration what is the predicted loss (in %) from a 1% increase in YTM? 4. What is the actual loss (in%)? 5. What is the convexity of the bond using the original parameters above? 6. After incorporating convexity into your forecast model, what is the new predicted loss? What degree of improvement do you see? Bond B $100 7. Suppose there are two bonds with parameters as follows: Bond A a. Par $100 b. Coupon 5% c. Yield 6% d. Maturity 8 years e. Assume annual flows and annual YTM 8% 10% 20 years same 8. What is the actual) duration of a portfolio that is 50% A and 50% B. Compare this to a 50-50 blending of the two durations. How close is the actual to the blend? 1. Find the Price and Macaulay's Duration of a bond with the following characteristics: a. Par $100 b. Coupon 5% c. Yield 8% d. Maturity 10 years e. Assume annual flows and annual YTM 2. Calculate the Modified Duration 3. Using the Modified Duration what is the predicted loss (in %) from a 1% increase in YTM? 4. What is the actual loss (in%)? 5. What is the convexity of the bond using the original parameters above? 6. After incorporating convexity into your forecast model, what is the new predicted loss? What degree of improvement do you see? Bond B $100 7. Suppose there are two bonds with parameters as follows: Bond A a. Par $100 b. Coupon 5% c. Yield 6% d. Maturity 8 years e. Assume annual flows and annual YTM 8% 10% 20 years same 8. What is the actual) duration of a portfolio that is 50% A and 50% B. Compare this to a 50-50 blending of the two durations. How close is the actual to the blend