The following are a few questions on duration and convexity. Do try to solve them on your own before
you have a look at the solutions. Expect similar difficulty and detail in quizzes and exams.
Q1.
Rank the following bonds in order of descending duration:
Bond
Coupon(%)
Time to maturity (yrs)
Yield to maturity (%)
A
15
20
10
B
15
15
10
C
0
20
10
D
8
20
10
E
15
15
15
Q2.
The Macualay duration of a bond selling at $81.12 is 10.774 years. Calculate the percentage and
dollar change in price of the bond if yield falls from 9% to 8.95%.
Q3.
Calculate the percentage and dollar change in price for a bond selling at 101.2666 with modified
duration equal to 4.2 and convexity equal to 20.74, if the yield changes by 0.75%.
Q4.
A 8% $100 coupon, 4 year coupon bond makes its coupon payments at the start of each year.
Calculate the modified duration using YTM = 5%. Is its modified duration likely to be lower or higher
than a similar bond that makes payments at the year ends only?
Q5.
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 Spring '12
 FarahSaid
 Bond duration, duration, Zerocoupon bond

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