Calculate the price value of a basis point

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Reference no: EM131966923

Answer the questions for the bond below, which pays interest semi-annually.

The modified duration is 3.9944 years and convexity measure is 19.7636 years. ( assume par value is $1000).

Coupon rate = 9%

Current yield to maturity = 8%

Maturity= 5 years

1. calculate the price value of a basis point if the new yield to maturity is 8.01%

2. calculate the actual price of the bond for a 50 basis point increase in interest rates (8% to 8.5%)

3. Using duration, estimate the price of the bond for a 50 bp increase interest rates (8% to 8.5) 3. using both duration and convexity measures, estimate the price of the bond for a 50 bp increase in interest rates (8% to 8.5%)

4. compare your results in 3 and 4 and explain which is closer to the actual price.

Reference no: EM131966923

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