Maturity of the bond = 3 years After you input the correct formulas, YTM= 0.1...

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Maturity of the bond = 3 years After you input the correct formulas, YTM= 0.1 <--- play with these two numbers, Coupon Rate Coupon Freq Per Year= 0.08 <--- see how the three curves change. 1 Par= 100 Column A Year(i) x Payment Date (year) Payment ($) 8 PV(i) of Payment ($) discounted by YTM -B8/(1+B2) Weight(i) PV(i)/ Sum[PV(i)] PV(i) / Price Column F Weight(i) -D8/$D$12 =A8*F8 8 -B9/(1+B2)^2 108 -B10/(1+B2)^3 -D9/$D$12 -D10/$D$12 -A9*F9 =A10*F10 Bond Price Sum [PV(i) of Payments] =sum(D8:D10) = Make sure the weights sum to 1: Sum[Weight(i)]=sum(F8:F10) - 0.00% Issue Date 1/1/2000 Maturity Date 1/1/2003 Coupon Rate 0.08 Old YTM 0.1 Price (Settlement Date, Marity Date, Coupon Rate, YTM, Redemption, Coupon Freq, Day Count Basis)= Duration = sum [Year(i) Weight(i)]=sum(H8:H10) - Modified duration - Duration/ (1+y)=H14/(1+B2)= Year(Year+1) t*(t+1) =A8*(A8+1) -A9 (A9+1) -A10*(A10+1) Column J X Column F -J8 F8 -J9*F9 -J10*F10 Year(i)[1+Year(i)] Weight(i) use this modified duration in the formula dP/P Convexity = sum { Year(i) * [Year(i)+1] *Weight(i)} =sum(L8:L10) = Modified convexity convexity/(1+y)^2 L16/(1+B2)^2= | <---use this modified convexity in the formula dP/P Redemption Coupon Freq Per Year Day Count Basis 100 Old Price ($) 95.03 Change in YTM New YTM Ay New Price ($) % change in price Actual % change in price based on duration rule % change in price based on duration + convexity 0 -0.1 124.00 0.01 -0.09 120.59 0.02 -0.08 117.30 0.03 -0.07 114.14 0.04 -0.06 111.10 0.05 -0.05 108.17 0.06 -0.04 105.35 0.07 -0.03 102.62 0.08 0.00 -0.02 -0.02 100.00 100.00 0.07 0.09 -0.01 97.47 0.01 91.41 0.1 0 95.03 9.I 95.03 0.11 0.01 92.67 92.07 0.12 0.02 90.39 70.57 0.13 0.03 88.19 0.14 0.04 86.07 0.15 0.05 84.02 0.16 0.06 82.03 0.17 0.07 60.11 80.11 0.18 0.08 78.26 0.19 0.09 76.46 0.2 0.1 74.72 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00% 0 0.05 0.1 0.15 0.2 0.25 -Actual based on duration rule based on duration + convexity Maturity of the bond = 3 years After you input the correct formulas, YTM= 0.1 <--- play with these two numbers, Coupon Rate Coupon Freq Per Year= 0.08 <--- see how the three curves change. 1 Par= 100 Column A Year(i) x Payment Date (year) Payment ($) 8 PV(i) of Payment ($) discounted by YTM -B8/(1+B2) Weight(i) PV(i)/ Sum[PV(i)] PV(i) / Price Column F Weight(i) -D8/$D$12 =A8*F8 8 -B9/(1+B2)^2 108 -B10/(1+B2)^3 -D9/$D$12 -D10/$D$12 -A9*F9 =A10*F10 Bond Price Sum [PV(i) of Payments] =sum(D8:D10) = Make sure the weights sum to 1: Sum[Weight(i)]=sum(F8:F10) - 0.00% Issue Date 1/1/2000 Maturity Date 1/1/2003 Coupon Rate 0.08 Old YTM 0.1 Price (Settlement Date, Marity Date, Coupon Rate, YTM, Redemption, Coupon Freq, Day Count Basis)= Duration = sum [Year(i) Weight(i)]=sum(H8:H10) - Modified duration - Duration/ (1+y)=H14/(1+B2)= Year(Year+1) t*(t+1) =A8*(A8+1) -A9 (A9+1) -A10*(A10+1) Column J X Column F -J8 F8 -J9*F9 -J10*F10 Year(i)[1+Year(i)] Weight(i) use this modified duration in the formula dP/P Convexity = sum { Year(i) * [Year(i)+1] *Weight(i)} =sum(L8:L10) = Modified convexity convexity/(1+y)^2 L16/(1+B2)^2= | <---use this modified convexity in the formula dP/P Redemption Coupon Freq Per Year Day Count Basis 100 Old Price ($) 95.03 Change in YTM New YTM Ay New Price ($) % change in price Actual % change in price based on duration rule % change in price based on duration + convexity 0 -0.1 124.00 0.01 -0.09 120.59 0.02 -0.08 117.30 0.03 -0.07 114.14 0.04 -0.06 111.10 0.05 -0.05 108.17 0.06 -0.04 105.35 0.07 -0.03 102.62 0.08 0.00 -0.02 -0.02 100.00 100.00 0.07 0.09 -0.01 97.47 0.01 91.41 0.1 0 95.03 9.I 95.03 0.11 0.01 92.67 92.07 0.12 0.02 90.39 70.57 0.13 0.03 88.19 0.14 0.04 86.07 0.15 0.05 84.02 0.16 0.06 82.03 0.17 0.07 60.11 80.11 0.18 0.08 78.26 0.19 0.09 76.46 0.2 0.1 74.72 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00% 0 0.05 0.1 0.15 0.2 0.25 -Actual based on duration rule based on duration + convexity

Answer rating: 100% (QA)

SOLUTION IN STEPS To solve this problem I will use the given information and formulas to calculate the various bond characteristics Given information ... View the full answer