Unformatted text preview: 24 in the text) 4. Calculate the duration at i = 5% of a 10-year annuity-immediate (annual payments). 5. Calculate the duration and convexity of a loan repaid with equal install-ments over n-periods if i = 0 . (hint: P n t =1 t = 1 2 n ( n + 1) and P n t =1 t ( t + 1) = 1 3 n ( n + 1)( n + 2) ) 6. Consider a 2-year $1000 bond with 7% coupons paid semiannually. (a) Calculate the volatility and convexity of the bond at an interest rate of 10% compounded semiannually. (b) Using part a) calculate the approximate relative change in the price of the bond if interest rates increased from10% to 11% compounded semiannually. (c) Compare your answer in b) to the actual relative price change. 1...
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This note was uploaded on 02/07/2010 for the course ACTSC 231 taught by Professor Chisholm during the Spring '09 term at Waterloo.
- Spring '09