Question

A newly issued bond has a maturity of 10 years and pays a 5.5% coupon rate (with coupon payments coming once annually). The bond sells at par value.

a. What are the convexity and the duration of the bond? Use the formula for convexity in footnote 7. (Round your answers to 3 decimal places.)

Answer is complete and correct.

Convexity 724.31

Duration 7.95 years

b. Find the actual price of the bond assuming that its yield to maturity immediately increases from 5.5% to 6.5% (with maturity still 10 years). Assume a par value of 100. (Round your answer to 2 decimal places.)

Answer is complete but not entirely correct.

Actual price of the bond 928.11-----wrong pls help

c. What price would be predicted by the modified duration rule ΔPP=−D*Δy? What is the percentage error of that rule? (Negative answers should be indicated by a minus sign. Round your answers to 2 decimal places.)

Answer is complete but not entirely correct.

	Percentage price change (7.54)selected answer correct % Percentage error 924.62selected answer incorrect %

PS: I can’t get answers correct all bolded please help on those

Answer 1

1. Duration of bond
Time	Cash Flow	PV Factor @5.5%	Discounted Cash Flow	Weight	Weight* Time
1	5.5	0.947867	5.21327014	0.052133	0.052133
2	5.5	0.898452	4.94148829	0.049415	0.09883
3	5.5	0.851614	4.68387515	0.046839	0.140516
4	5.5	0.807217	4.43969209	0.044397	0.177588
5	5.5	0.765134	4.20823895	0.042082	0.210412
6	5.5	0.725246	3.98885208	0.039889	0.239331
7	5.5	0.687437	3.78090245	0.037809	0.264663
8	5.5	0.651599	3.58379379	0.035838	0.286704
9	5.5	0.617629	3.39696094	0.03397	0.305726
10	105.5	0.585431	61.7629261	0.617629	6.176293
			100		7.952
1. Convexity of Bond
Time	Cash Flow	Discounted Cash Flow	(Time)^2 +Time	(D)*( C)
(A)	(B)	(C)	(D)	(E)
1	5.5	5.21327	2	10.42654
2	5.5	4.941488	6	29.64893
3	5.5	4.683875	12	56.2065
4	5.5	4.439692	20	88.79384
5	5.5	4.208239	30	126.2472
6	5.5	3.988852	42	167.5318
7	5.5	3.780902	56	211.7305
8	5.5	3.583794	72	258.0332
9	5.5	3.396961	90	305.7265
10	105.5	61.76293	110	6793.922
		100		8048.267
	Convexity=	8048.267/(100*(1.055)^2)
	=	72.30985

2. Actual price when YTM goes 5.5% to 6.5%
Time	Cash Flow	PV Factor @6.5%	Discounted Cash Flow
1	5.5	0.938967	5.16431925
2	5.5	0.881659	4.84912606
3	5.5	0.827849	4.55317
4	5.5	0.777323	4.275277
5	5.5	0.729881	4.0143446
6	5.5	0.685334	3.76933765
7	5.5	0.643506	3.53928418
8	5.5	0.604231	3.32327153
9	5.5	0.567353	3.12044275
10	105.5	0.532726	56.2025967
			92.8111698