# A treasury bond has maturity T = 10Y and pays at the end of each year a

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## Question:

A treasury bond has maturity T = 10Y and pays at the end of each year a coupon of $5.00 on a face value of $100. The risk-free interest rate for all maturities is 4.0% with continuous compounding. The bond face value (notional) is $100.

i) compute the price of the bond.

ii) compute the duration and convexity of the bond.

iii) Suppose that the risk-free interest rate increases to 5%. Recalculate the bond price and compare with the result of the duration-convexity approximation

**Related Book For**

## Financial Markets and Institutions

ISBN: 978-0077861667

6th edition

Authors: Anthony Saunders, Marcia Cornett