Question: QUESTION 7: (3 + 3 + 5 = 11 marks) Using Excel to do this question 3 a. Consider the 8-year bond, if you were

QUESTION 7: (3 + 3 + 5 = 11 marks) Using

QUESTION 7: (3 + 3 + 5 = 11 marks) Using Excel to do this question 3 a. Consider the 8-year bond, if you were told that face value (FV) = $12,000, coupon payment (C)= $240, and paid semi-annually. Yield to maturity (YTM) = 5.5% per annum. What will be the price (P), Macauley Duration (McD) and Convexity of this bond? b. Using the information in part (a) find the actual change in P when the YTM changes from 5.5% to 4.5% and the quadratic approximation to this change using the formula below: 1 AP 2 MoD x P x Ay + c x P x (Ay)2 [MoD is the modified Duration, C is convexity] c. Comment on the price sensitives (Duration, Convexity and the actual price percentage change) of two bonds in QUESTION 6 and QUESTION 7

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