Effective Bond Duration; effective convexity; price change
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Problem:
5.Calculate the effective duration of a bond to a 100 basis point change in interest rates with a 6-1/4 coupon, 10-years remaining to maturity, and an asking quote of 110.7811 (decimal, not 32nds).
Calculate the effective convexity to a 100 basis point change of the bond in Question 5.
Calculate the total percentage price change (duration and convexity) to a 65 basis point decrease in interest rates for the bond in Questions 5 and 6.
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Solution Summary
Solution describes the steps for calculating effective bond duration, effective convexity and total percentage price change.
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Solution:
Calculate the effective duration of a bond to a 100 basis point change in interest rates with a 6-1/4 coupon,
10-years remaining to maturity, and an asking quote of 110.7811 (decimal, not 32nds).
Face Value of bond=100
Price of bond Po=110.7811
Coupon rate 6.25% of face value=6.25
Time to maturity=10 years
Let us calculate YTM of a bond using IRR function in MS Excel
Year End Cash flow
0 -110.7811 (Price of bond)
1 6.25 Coupon payment
2 6.25 Coupon payment
3 6.25 Coupon payment
4 6.25 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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