Question
In a spreadsheet, create three separate sheets, labelled Part a, Part b, and Part c. Then answer the following questions. 1. On your sheet labelled
In a spreadsheet, create three separate sheets, labelled Part a, Part b, and Part c. Then answer the following questions.
1. On your sheet labelled Part a do the following. Firstly, you are required to price a number of bonds (30 in all). We start by considering a 2% Treasury bond, maturing in 7 years. Price this bond at yields to maturity of
47 basis points under CY20.
153 basis points over CY20.
353 basis points over CY20
. . . .
1753 basis points over CY20. where CY20 is the Australian 10-year government bond yield for calendar year 2020 (i.e., the 10-year government bond yield on 31 December 2020).
Next, consider a 10% Treasury bond, maturing in 7 years. Also price this bond at yields to maturity of
47 basis points under CY20.
153 basis points over CY20.
353 basis points over CY20
. . . .
1753 basis points over CY20.
Finally, consider a 20% Treasury bond, maturing in 7 years. Also price this bond at yields to maturity of
47 basis points under CY20.
153 basis points over CY20.
353 basis points over CY20.
. . . .
1753 basis points over CY20.
2. On your sheet labelled Part b do the following.
Produce one graph of the prices (against yields) you calculated above for the three different bondsthat is, all three bond results should be plotted in the one graph. Price should be the vertical axis of your graph. Label the three curves you have plotted as 2% coupon, 10% coupon, and 20% coupon.
3. On your sheet labelled Part c do the following. Consider the move in yield from i0 = 7% to i1 = 5%. By adjusting our approximate formula for modified duration, calculate the (approximate) duration of each of the three Treasury bonds maturing in 7 years we worked with above (one with 2% coupon, one with 10% coupon, and one with 20% coupon). Next, consider the move in yield from i0 = 15% to i1 = 17%. Using your formula above, calculate the approximate duration of each of the three Treasury bonds maturing in 7 years we worked with above (one with 2% coupon, one with 10% coupon, and one with 20% coupon).
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