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Category > Business & Finance Posted 13 Jul 2017 My Price 8.00

a. Use a spreadsheet to calculate the durations

a. Use a spreadsheet to calculate the durations of the two bonds in Spreadsheet 16.1 if the annual interest rate increases to 12%. Why does the duration of the coupon bond fall while that of the zero remains unchanged? (Hint: examine what happens to the weights computed in column F.)

b. Use the same spreadsheet to calculate the duration of the coupon bond if the coupon was 12% instead of 8% and the semiannual interest rate is again 5%.

Explain why duration is lower than in Spreadsheet 16.1. (Again, start by looking at column F.)

a. Footnote 5 presents the formula for the convexity of a bond. Build a spreadsheet to calculate the convexity of a 5-year, 8% coupon bond making annual payments at the initial yield to maturity of 10%.

b. What is the convexity of a 5-year zero-coupon bond?

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Status NEW Posted 13 Jul 2017 04:07 PM My Price 8.00

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