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What is the expected change in price

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1. Suppose that when the government par curve is raised and lowered by 25 bps, the new full prices for the callable bond from the model are 99.050120 and 102.890738, respectively. Therefore, PV0=101.060489, PV+ = 99.050120, PV- = 102.890738, Curve = 0.0025. Calculate the ff:

a.Effective Duration

b.Effective Convexity

c.If the yield declines by 75bps, What is the expected % change in price?

d. What is the new bond price?

Effective Duration =

Effective Convexity =

% Price Change =

New bond price =

2. Consider an option-free bond that matures in four years, has a coupon rate of 10%, and has a maturity value of P100. Assume that the bond pays interest semiannually, with discount rate of 8%.

At what price will you invest today?

Reference no: EM133114547

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