T8+2011

T8+2011 - Fina 3104 L2 T8 HW3 returned Duration and...

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Fina 3104 1 Fina 3104 L2 T8 § HW3 returned § Duration and Convexity § Duration and Holding Period § Hang Seng Index Futures

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Fina 3104 2 Q1:Duration and Convexity (15 mins) Bank of East Asia issued a 2-year bond on July 23, 2009. The following information is given: Coupon Rate: 2.8% p.a. Coupon Paying Frequency: Semi-Annual Face Value: RMB 10,000 The bond is issued at par
Fina 3104 3 Q1: Duration and Convexity (a) Calculate the Macaulay’s Duration as of July 23, 2009. (b) Calculate the Convexity as of July 23, 2009. (c) Using Duration only, calculate the approximate price change (in %) if the semi- annual yield is 1.5%. (d) Using both Duration and Convexity, calculate the approximate price change (in %) if the semi-annual yield is 1.5%.

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Fina 3104 4 Solution (a) = = 3.92 periods = 1.96 years 10000 014 . 1 / 10140 4 10000 014 . 1 / 140 3 10000 014 . 1 / 140 2 10000 014 . 1 / 140 1 4 3 2 × + × + × + ×
Fina 3104 5 Solution (b) Convexity = = = 18.92 (c) Modified Duration = D* = 3.92/1.014 = 3.86 = -3.86 * (0.015-0.014) = -0.386% ( 29 = + + + × T

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T8+2011 - Fina 3104 L2 T8 HW3 returned Duration and...

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