Estimate the bond duration and convexity

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Reference no: EM131977795

Consider a 2-year semiannual bond with annual coupons of 5% and face value of $1,000. The bond’s annual yield-to-maturity is 4% compounded semiannually.

a) Estimate the bond’s duration and convexity.

b) Estimate the new bond prices using the duration adjustment when the annual yield changes by 1% and -0.5%.

c) Estimate the new bond prices using the duration and convexity adjustment when the annual yield changes by 1% and -0.5%.

Reference no: EM131977795

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