Calculate the exact price change

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Reference no: EM132072959

Consider the following bond (assume: credit risk free, no embedded options, pays interest semiannually):

Coupon 9%

YTM 8%

Term (yrs) 5

Par 100.00

Compute the following (a) The price value of a basis point; (b) The modified duration and convexity; (c) Calculate the exact price change for a 100bp increase in the bond yield; (d) Using duration only, estimate the price of the bond for a 100bp increase in yields; (e) Using duration and convexity, estimate the price change of the bond for a 100bp increase in yields; (f) Without an actual calculation, indicate (“explain”) whether the duration of the bond would be higher or lower if the YTM were 10%, rather than 8%. Hint: recall that the price-yield curve is convex for risk- and option-free bonds Also, think in terms of Macauley duration as a weighted time average.

Reference no: EM132072959

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