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  • Bond Class 8

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    sairad1999
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    The document provides information to calculate the price, duration, modified duration, and convexity of a 5-year bond with a face value of $1000, coupon rate of 12% paid annually, and yield to maturity of 14%. It then calculates the new price of the bond if the yield falls by 60 basis points using duration only, duration and convexity, and full revaluation.

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    The document provides information to calculate the price, duration, modified duration, and convexity of a 5-year bond with a face value of $1000, coupon rate of 12% paid annually, and yield to maturity of 14%. It then calculates the new price of the bond if the yield falls by 60 basis points using duration only, duration and convexity, and full revaluation.

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    © All Rights Reserved
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    5 views2 pages

    Bond Class 8

    Uploaded by

    sairad1999
    The document provides information to calculate the price, duration, modified duration, and convexity of a 5-year bond with a face value of $1000, coupon rate of 12% paid annually, and yield to maturity of 14%. It then calculates the new price of the bond if the yield falls by 60 basis points using duration only, duration and convexity, and full revaluation.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 2

    Q Face Value 1000

    Coupon rate 12% Payable annually


    Maturity 5 years
    YTM 14%
    Calculate Price,Duration,MD & Convexity
    Calculate New Price if yield is expected to fall by 60 bp using
    1. Only Duration
    2. Duration & Convexity
    3. Full Revaluation

    Answer
    Years (X) Cash Flow DF @ 14%
    1 120 $0.8772
    2 120 $0.7695
    3 120 $0.6750
    4 120 $0.5921
    5 1120 $0.5194

    Price $931.34
    Duration 3725.59/931.34 4.00
    Modified Duration Duration/1+r 3.51
    Modified Convexity Summation (WX*(X+1))/(2*P0*(1+r)^2) 8.513234245277

    Forecast r will fall by 60 bp


    % change in Price
    Duration Effect 2.1054
    Convexity Adjustment 0.0306
    Total % Change in Price 2.1360
    New Price Estimate
    using only Duration $950.95
    Using Duration & Convexity 951.23

    New Price using Full Revaluation @ 13.4% $951.24


    PVCF(W) WX WX*(X+1)
    $105.26 $105.26 210.53
    $92.34 $184.67 554.02
    $81.00 $242.99 971.96
    $71.05 $284.20 1420.99
    $581.69 $2,908.46 17450.79
    $931.34 $3,725.59 $20,608.28

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