Question: *MUST SHOW ALL WORK AND STEPS TO SOLVE PROBLEM TYPED ANSWERS IN FULL DETAIL Problem 1 : Lucky Star Inc. just issued a bond with

*MUST SHOW ALL WORK AND STEPS TO SOLVE PROBLEM TYPED ANSWERS IN FULL DETAIL

Problem 1 : Lucky Star Inc. just issued a bond with the following characteristics:

Maturity = 3 years

Coupon rate = 8%

Face value = $1,000

YTM = 10%

Interest is paid annually and the bond is noncallable.

  1. Calculate the bonds Macaulay duration Round "Present value" to 2 decimal places and "Duration" to 4 decimal place.
  2. Calculate the bonds modified duration
  3. Assuming the bonds YTM goes from 10% to 9.5%, calculate an estimate of the price change without considering convexity .
  4. Calculate the convexity of the bond.

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