Problem A,

A bond matures in 26 years, has an annual coupon rate of 8% on a face of $1000, yields an annual rate of 10%, and its first annual coupon will be paid a year from now. The following information applies to the above bond:

YTM $-Price

10.2% 801.5761

10.0% (presently) P₀ = 816.7811

9.8% 832.4845

At the present price (P=816.7811), the annualized Modified Duration is

a. 19.02

b. 19.98

c. 9.46

d. 9.51

At the present price (P₀), the measure of Convexity is equal to

a. 261.31

b. 152.55

c. 184.18

d. 154.34

Assuming that the YTM changes by 200 Basis Points (i.e., 10% 2%), then the above Modified Duration suggests a price change of ($)

a. 154.535

b. 176.170

c. 155.170

d. 146.175

The combined effect of Duration and Convexity when the YTM increases by 200 BPs is to reduce the above bond price by ($)

a. 128.995

b. 180.355

c. 155.175

d. 129.615