B2 is a five year bond with a nominal rate of 6% per annum and have six monthly coupons and a face value of $3000 (YTM of 6%). Using the bond B2 derive the equations for the linear and quadratic approximations where the price of the bond (P) is the dependent variable and the YTM is the independent variable (use YTM = 0.06 as the starting value). In Excel graph all three functions with P on the vertical axis and YTM on the horizontal axis. That is on the same graph show:

P = f(YTM) the actual relationship P = f(YTM) the linear relationship and P = f(YTM) the quadratic relationship. Use YTM values of

a. 0

b. 0.005

c. 0.01

d. 0.015

Answer rating: 100% (QA)

Part a Let y be the YTM C C C F P 1y 1 y2 1 y3 Part b 3C F d... View the full answer