You are the portfolio manager of a large company that invests in many securities including corporate bonds.
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Question:
Maturity period 7 years
Coupon rate 12% Par value $1,000
Coupons on bonds are paid annually
Yield to maturity of bonds 8% Required:
i) Calculate the Macualay’s duration, modified duration and convexity
ii) Calculate the change in bond price when yield to maturity changes by one percent using modified duration
iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity is considered Notes: You need to show detailed calculations for each year in order to receive full marks for this question.
Related Book For
Business Research Methods
ISBN: 978-0073521503
12th edition
Authors: Donald R. Cooper, Pamela S. Schindler
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