FIN 422 Carter Duration and Convexity Project Please use Excel to complete

FIN 422

Carter

Duration and Convexity Project

Please use Excel to complete the problem below. Please submit your solution electronically.

Duration and Convexity

1. What is the duration of a 12-year, 7.7% semi-annual bond if the market rate on bonds of similar quality is 7.5%?

2. Now suppose that the YTM has changed to 7.53%%. Using Macaulay duration (which is practically the same as using modified duration since you need to divide by (1+y)), what is the approximate percent change in the price of the bond? (You do not need to recalculate Macaulay duration using 7.53%. Use the duration value that you found in Problem 1.)

3. Now include convexity to estimate the percent change in the price of the bond.