Duration and Convexity

CalcMedium~20 min· Other Finance Questions

Problem

A 5-year annual-coupon bond pays $6%$ on a $100 f a ce v a l u e . I t sy i e l d t o ma t u r i t y i s$ y = 5%$.

Part A

Compute the bond's price, Macaulay duration, and modified duration.

Part B

Compute the convexity.

Part C

Use (i) duration only and (ii) duration + convexity to estimate the price change for a $+ 100$ bp parallel shift in yields. Compare with the exact new price.

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