Question: please answer a question ii 2. (i) Explain the concept of bond convextly (ii) Assume a bond has Macaulay Duration of 8 years and yield

please answer a question ii

2. (i) Explain the concept of bond convextly (ii) Assume a bond has Macaulay Duration of 8 years and yield to maturity of 10%. If we expect the bond YTM to decline by 75 basis points, calculate the expected change in the bond price of GHS 950 (note 100 basis point =1% ). ( 4 marks) (a) Compute the expected change in price for the 10-year treasury bond if interest rates go up by 0.75 percent. ( 4 marks) (b) The expectation is that current Bank of Ghana policy is going to push interest rates up. Mensah is considering keeping only one of the three bonds in his portfolio. Bond A has a duration of 5.3128 , bond B has a duration of 3.2056 , whilst bond C has the following characteristics: Which one of the three bonds should be selected? (8 marks)

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