1) Fabozzi, 10^th edition, Chapter 4, Problem #2. Calculate the requested measures in parts (a) through (f) for bonds A and B (assume that each bond pays interest semiannually): (60 points)

	Bond A	Bond B
Coupon	8%	9%
Yield to maturity	8%	8%
Maturity (years)	2	5
Par	$100.00	$100.00
Price	$100.00	$104.055

(a) Price value of a basis point

100.0186

(b) Macaulay duration

(c) Modified duration

(d) The approximate duration using the shortcut formula by changing yields by 20 basis points

(e) Convexity measure

(f) The approximate convexity measure using the shortcut formula by changing yields by 20 basis points

G. Calculate the actual price of the bonds for a 100-basis-point increase in interest rates.

h. Using duration, estimate the price of the bonds for a 100-basis point increase interest rates.

i. Using both duration and convexity measure, estimate the price of the bonds for a 100-basis-point increase in interest rates.

j. Comment on the accuracy of your results in parts b and c, and state why one approximation is closer to the actual price than the other.

k. Without calculations, indicate whether the duration of the two bonds would be higher or lower if the yield to maturity is 10% rather than 8%.