A 10-year semi-annual coupon bond (6% annual coupon rate) was issued eight years ago. You want to buy the bond today and current YTM is 10% and the face value is $1000. 

a) What is the duration and modified duration of the bond? With 2% decrease in YTM, how much the bond price will change in percentage? 

b) Now consider convexity correction. What's the bond price change in percentage after considering both duration and convexity effects for a 2% decrease in YTM? 

Answer rating: 100% (QA)

a To calculate the duration and modified duration of the bond Given information 10year bond 20 semiannual periods Annual coupon rate 6 Issued 8 years ... View the full answer