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A bond with face value = 9,000 currently trades at par. Its Macaulay duration is 5.32...

A bond with face value = 9,000 currently trades at par. Its Macaulay duration is 5.32 years and its convexity is 56.02.

Suppose yield currently is 2.74%, and is expected to change to 2.01%. Calculate the approximate dollar change in price using both duration and convexity.

Assume annual compounding. Round your answer to 2 decimal places.

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Answer #1

Price change (%) = -Duration * (Change in yield/(1+yield)) + 0.5 * convexity * (change in yield)^2
= -5.32 * (-0.0073/(1+0.0274) + 0.5 * 56.02 * (-0.0073)^2
= 2.98593591%

Dollar change in price = 9,000 * 2.98593591%
= 26,873.42

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