I don’t know how to handle this Accounting question and need guidance.
Please answer following questions with formula, Thanks
A bond yields 5%, has a semi- annual coupon of 9%, a term of 10 years.
1. What is the duration?
2. What is the convexity?
3. What is the duration-based change in price if the yield increases by
60 basis points?
4. What is the actual (calculator) change in price if the yield
increases by 60 basis points?
5. What is the difference between #3 and #4? What do you attribute
that difference?
6. If the bond is callable in 2 years at 101, what is the yield to
call?
7. What is negative convexity?
8. What is positive convexity?
9. What is price compression?
10. What does this mean: “ In a callable bond, as the yield decreases,
the price increases but at a decreasing rate.”?
