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Lucky Star Inc. just issued a bond with the following characteristics: Maturity = 3 years Coupon...

Lucky Star Inc. just issued a bond with the following characteristics:

Maturity = 3 years

Coupon rate = 8%

Face value = $1,000

YTM = 10%

Interest is paid annually and the bond is noncallable.

Calculate the bond’s Macaulay duration (10 points) ?Round "Present value" to 2 decimal places and "Duration" to 4 decimal place.?

Calculate the bond’s modified duration (5 points)

Assuming the bond’s YTM goes from 10% to 9.5%, calculate an estimate of the price change without considering convexity (5 points).

Calculate the convexity of the bond.

Solutions

Expert Solution

maculay duraion=2.7774

Modified duration=2.525

priche chnage=modified duration*chnage in yiled*100

=2.525*0.5%*100=1.26 and it is increase

convexity=8.9398

jeff jeffy answered 2 years ago
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