solution

A corporate bond has 2 years to maturity, a coupon rate of 9%, a face value of $1,000 and pays coupons semiannually. The market interest rate for similar bonds is 9.2%.

Part 1: What is the price of the bond (in $)? (Please enter your answer with 4 digits after the decimal point!)
Part 2:What is the value of the numerator to be used in calculating bond’s duration? (Please enter your answer with 6 digits after the decimal point!)

Part 3:What is the bond’s duration? (Please enter your answer with 8 digits after the decimal point!)
Part 4:What is the modified duration (MD)? (Please enter your answer with 8 digits after the decimal point!)
Part 5:What is the dollar duration (DD)? (Please enter your answer with 4 digits after the decimal point!)
Part 6:If the market interest rate decreases by 101 basis points, what is the percentage change in bond price (?P/P)? (Please enter your answer with 6 digits after the decimal with % sign at the end, .e.g. 9.123456%)
Part 7:If the market interest rate decreases by 101 basis points, what is the dollar change in bond price (?P)? (Please enter your answer with 4 digits after the decimal point!)

Part 8:Convexity Calculations: Step1: What is the change in bond price if the yield decreases by 1 basis points ?P^–? (Please enter your answer with 8 digits after the decimal point!)
Part 9:Convexity Calculations: Step2 What is the change in bond price if the yield increases by 1 basis points, ?P⁺? (Please enter your answer with 8 digits after the decimal point!)
Part 10:Convexity Calculations: Step3 What is the convexity of the bond? (Please enter your answer with 6 digits after the decimal point!) Note: This is the answer to last step in practice problems. In this exam, you are not asked to answer the steps F.3 and F.4 of practice problems.

Part 11:

What is the convexity adjusted percentage change in bond price if market interest rate decreases by 101 basis points%? (Please enter your answer with 6 digits after the decimal point!)
(Please enter your answer with 6 digits after the decimal with % sign at the end, .e.g. 9.123456%)