8. Bond A has a yield to maturity 20% and trades at $100. This bond pays...

8. Bond A has a yield to maturity 20% and trades at $100. This bond pays semi-annual coupons. Face value is also $100 and time to maturity is 3 years. a. Calculate the duration of this bond. Note: Yield to maturity is not necessarily the same as effective yield (APR vs. EAR) b. Calculate the convexity of this bond c. If yields decrease by 30% (not p.p.), what is the impact on prices in percentage terms i. Using only duration ii. Using duration and convexity d. In question c), which result (i or ii) provides the best approximation to the actual impact of yield movements on prices?

Expert Solution

jeff jeffy answered 11 months ago

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