Search for question
Question

4. (20') Calculate the requested measures for bond A (assume that bond A pays interest semiannually): Coupon Bond A 7% Yield to Maturity 6% Maturity (years) 7 Par $100 a) Macaulay duration b) Modified duration c) Using duration, estimate the price of the bonds for a 100-basis-point increase in interest rates. d) If convexity is 20, using both duration and convexity to estimate the bond price for a 100- basis-point increase in interest rates. e) Comment on the accuracy of your results in part c and d, and state why one approximation is close to the actual price than the other.

Fig: 1