Question: Solve the following on Excel, please show formulas for each: 1. AAA Inc. has a bond with 5 years to maturity, annual 4% coupons and

Solve the following on Excel, please show formulas for each:

1. AAA Inc. has a bond with 5 years to maturity, annual 4% coupons and 7% yield to maturity.

a) What is the modified duration?

b) What is the dollar duration?

c) What is the dollar convexity?

d) What is the convexity measure?

e) What is the approximate change in the market price of the bond if the yield to maturity increases by 10 basis points? How much of this is due to the convexity effect?

f) What is the approximate change in the market price of the bond if the yield to maturity increases by 100 basis points (i.e., one percentage point)? How much of this is due to the convexity effect?

g) What are the exact price changes for 10 and 100 basis point increases in yield?

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