Convexity=((1+YTM)21)t=1T[w(t2+t)]wt=PV(Bond)PV(CFt)=PCFt/(1+y)t (1). Compute on Sheet 2 the (Macaulay) duration for these two bonds using TWO methods (4 points): a. the step-by-step method as in class using the template; b. the Excel function called Duration. (2). Compute on Sheet 3 the convexity for these two bonds using the templates. (4 points) (3). On the TOP RIGHT corner of Sheet 3, use PP=ModifiedDurationy+21Convexity(y)2=(1+y)MacaulayDurationy+21Convexity(y)2 to calculate the percentage change in price for each of these two bonds when the yield ( 2 points) a. increases by 1% b. decreases by 1% Bond B Bond A Duration Excel Function \begin{tabular}{l|r|r|} \hline Input & & \\ \hline Settlement Date & 11/21/2013 & 11/21/2013 \\ \hline Maturity Date & 11/21/2023 & 11/21/2033 \\ \hline Face Value & 1000 & 1000 \\ \hline Coupon Rate & 10 & 10% \\ \hline Maturity (Yrs) & 7% & 20 \\ \hline Interest Rate(YTM) & 1 & 7% \\ \hline Frequency & & \\ \hline Boutput & & \\ \hline Coupon Payment & & \\ \hline Bond price & & \\ \hline \end{tabular} D=t=1T(twt)wt=PV(Bond)PV(CFt)=PCFt/(1+y)t