Problem
A bond has the information: paying coupon at 9% semiannually, having a yield to maturity of 8%, with a par value of $1000, and remaining 5 years to maturity.
1. What is the price value of a basis point for the bond?
2. Compute the Macaulay durations for the bond.
3. Compute the modified duration for the bond.
4. Using duration, estimate the percentage change in bond price for a 100-basis-point increase in interest rates.
5. Compute the convexity measure for the bond.
6. If interest rates for all maturities increase by 100 basis points, what is the approximate percentage change in the bond value due to duration and convexity?