Consider the value of a bond portfolio consisting of single 6-year semi-annual coupon bond with par value of $10,000 and coupon rate equal to 5% maturing. We define the portfolio value at time t to be the value of the reinvested coupon payments up to time t plus the market price of the bond at time t. We assume that coupons are reinvested at semi-annual compounded interest rate 2% less than the yield to maturity of the bond at the time of reinvestment. Consider the following three scenarios: Scenario 1: The yield to maturity remains unchanged at 5%. Scenario 2: The yield to maturity jumps immediately to 7% after purchase and recedes to 4% after the end of year 3. Scenario 3: The yield to maturity jumps from 5% to 7% at the end of year 3 and then recedes to 3% at the beginning of year 5. For each of these scenarios, fill up the table below for each time t. Use Excel for it and for other questions as well (USE EXCEL TO DO YOUR CALCULATION) 6 Year 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 Bond Price Reinvested Coupon Portfolio Value Ajustment Date Ajustment Month Duration Convexity Use a graph like a barchart and a time-series plot to plot the duration over time, convexity over time, the bond price over time, and the portfolio value over time for each scenario. Compare the results of these different scenarios and summarize your findings in few sentences. Consider the value of a bond portfolio consisting of single 6-year semi-annual coupon bond with par value of $10,000 and coupon rate equal to 5% maturing. We define the portfolio value at time t to be the value of the reinvested coupon payments up to time t plus the market price of the bond at time t. We assume that coupons are reinvested at semi-annual compounded interest rate 2% less than the yield to maturity of the bond at the time of reinvestment. Consider the following three scenarios: Scenario 1: The yield to maturity remains unchanged at 5%. Scenario 2: The yield to maturity jumps immediately to 7% after purchase and recedes to 4% after the end of year 3. Scenario 3: The yield to maturity jumps from 5% to 7% at the end of year 3 and then recedes to 3% at the beginning of year 5. For each of these scenarios, fill up the table below for each time t. Use Excel for it and for other questions as well (USE EXCEL TO DO YOUR CALCULATION) 6 Year 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 Bond Price Reinvested Coupon Portfolio Value Ajustment Date Ajustment Month Duration Convexity Use a graph like a barchart and a time-series plot to plot the duration over time, convexity over time, the bond price over time, and the portfolio value over time for each scenario. Compare the results of these different scenarios and summarize your findings in few sentences
