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Using an Excel spreadsheet, calculate the convexity for the two bonds you selected for the Module Two Assignment. Conduct an analysis of their duration and
Using an Excel spreadsheet, calculate the convexity for the two bonds you selected for the Module Two Assignment. Conduct an analysis of their duration and convexity and expound on the difference between the two concepts. See my attached Excel sheet for my two bonds.
BOND DURATION Basics Apple Inc. Notes Due 2025 Inputs Rate Convention: 1 = EAR, 0 = APR Annual Coupon Rate (CR) Yield to Maturity (Annualized) (y) Number of Payments / Year (NOP) Number of Periods to Maturity (T) Face Value (FV) Outputs Discount Rate / Period (RATE) Coupon Payment (PMT) 0 1.4% 0.8% 2 8 $1,000 0.4% $7 Calculate Bond Duration using the Cash Flows Period Time (Years) Cash Flows Present Value of Cash Flow Weight Weight * Time Duration Modified Duration 3.91 3.89 Calculate Bond Duration using the Formula Duration Modified Duration 3.91 3.89 Calculate Bond Duration using the Function (under APR) Duration Modified Duration 3.91 3.89 0 0.0 1 0.5 $6.88 $6.85 0.7% 0.00 Annual Percentage Rate 2 1.0 $6.88 $6.82 0.7% 0.01 3 1.5 $6.88 $6.79 0.7% 0.01 4 2.0 $6.88 $6.76 0.7% 0.01 5 2.5 $6.88 $6.73 0.7% 0.02 6 3.0 $6.88 $6.71 0.7% 0.02 7 3.5 $6.88 $6.68 0.7% 0.02 8 4.0 $1,006.88 $973.98 95.4% 3.81 Total $1,021.32 100.0% 3.91 BOND DURATION Basics Microsoft Notes Due 2025 Inputs Rate Convention: 1 = EAR, 0 = APR Annual Coupon Rate (CR) Yield to Maturity (Annualized) (y) Number of Payments / Year (NOP) Number of Periods to Maturity (T) Face Value (FV) Outputs Discount Rate / Period (RATE) Coupon Payment (PMT) 0 2.1% 1.3% 2 8 $1,000 0.7% $11 Calculate Bond Duration using the Cash Flows Period Time (Years) Cash Flows Present Value of Cash Flow Weight Weight * Time Duration Modified Duration 3.86 3.83 Calculate Bond Duration using the Formula Duration Modified Duration 3.86 3.83 Calculate Bond Duration using the Function (under APR) Duration Modified Duration 3.86 3.83 0 0.0 1 0.5 $10.63 $10.55 1.0% 0.01 Annual Percentage Rate 2 1.0 $10.63 $10.49 1.0% 0.01 3 1.5 $10.63 $10.42 1.0% 0.02 4 2.0 $10.63 $10.35 1.0% 0.02 5 2.5 $10.63 $10.28 1.0% 0.02 6 3.0 $10.63 $10.21 1.0% 0.03 7 3.5 $10.63 $10.14 1.0% 0.03 8 4.0 $1,010.63 $958.43 93.0% 3.72 Total $1,030.87 100.0% 3.86 Explain how a 1% increase in interes rates would affect the price of the bonds. Bond prices change when interest rate change, because of the mathematics of the relative change, the gains are not alway It's also important to point out that prices are also affect by the time for maturity, the longer the time more vollatility we will e losses for the same interest rate change, in our case a 1% increase rates will fall by 1.%, but if the change is lets say by 4.4%, the rate ange is lets say by 4.4%, the rates will by 4.6
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