Question
Assume that you own semi-annual pay Treasury bond with par value of $100, a YTM of 9% and a coupon of 11%. Its maturity is
Assume that you own semi-annual pay Treasury bond with par value of $100, a YTM of 9% and a coupon of 11%. Its maturity is 10 years. It is currently priced at $113.0079.
(2 pts.) 8a. Calculate the bonds duration. Use a 20 basis point change in rate to calculate V+ and V-
(4 pts) 8b. Assume that the bonds YTM goes up to 10.3%. Using the duration formula, estimate the bonds new price.
(1 pt) 8c. Assume that the bonds YTM goes up to 10.3%. Actually recalculate the price of the bond.
(5 pts) 8d. Calculate the bonds convexity measure using a 20 basis point change in rates
(2 pts) 8e. Calculate the convexity adjustment assuming the bonds YTM goes to 10.3%.
(6 pts) 8f. Use the convexity adjustment in combination with the duration adjustment to estimate the price of the bond at a YTM of 10.3%.
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