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Duration and Convexity - Shell File

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10 views

Duration and Convexity - Shell File

Uploaded by

muskaan.k1
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Bond Duration and Convexity

Principal $1,000.00
Coupon Rate 6.50%
Payments per year 2
Years to maturity 4
Annual Yield 8.00%
Price
Macaulay Duration, years
Modified Duration, years
Convexity
Present
Time, Weighted
Payment Value of Weight Wi(i+1)
years Time, years
Payment
0.5
1
1.5
2
2.5
3
3.5
4
IMMUNIZED BOND PORTFOLIO TO SATISFY FUTURE LIABILITY
Settlement Date 4/15/2000
Market Interest Rate 8.00%
Bond A
Maturity date 4/15/2015 Price
Principal $100.00 Duration
Coupon rate 6.00% Mod. Duration
Payments/year 2 Convexity
Present Value of Weighted Time,
Time, years Payment Weight wi(i+1)
Payment years
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
11.5
12
12.5
13
13.5
14
14.5
15
Total
Bond B
Maturity date 4/15/2011 Price
Principal $100.00 Duration
Coupon rate 6.50% Mod. Duration
Payments/year 2 Convexity
Present Value of Weighted Time,
Time, years Payment Weight wi(i+1)
Payment years
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
Total
Bond C
Maturity date 4/15/2020 Price
Principal $100.00 Duration
Coupon rate 6.25% Mod. Duration
Payments/year 2 Convexity
Present Value of Weighted Time,
Time, years Payment Weight wi(i+1)
Payment years
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
11.5
12
12.5
13
13.5
14
14.5
15
15.5
16
16.5
17
17.5
18
18.5
19
19.5
20
Total
Liability
Maturity date 4/15/2018 Duration
Annual Payment $250,000.00 Modified Duration
Payments/year 2 Convexity
Present Value of Weighted Time,
Time, years Payment Weight wi(i+1)
Payment years
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
11.5
12
12.5
13
13.5
14
14.5
15
15.5
16
16.5
17
17.5
18

Computation of Immunized Portfolio (with noninteger numbers of $100 bonds)


Bond A Bond B Bond C Portfolio
Number purchased (sold)
Bond Price (NPV)
Total NPV
Modified Duration
Weighted Mod. Duration
Convexity
Weighted Convexity
Sensitivity of Present Values of Immunized Portfolio and Target
to Interest Rate (with number of each bond rounded to nearest integer)
Bond A Bond B Bond C Total
Number of Bonds
Cash Flow
PV of
Market Interest
Immunized PV of Target Difference of PVs
Rate
Portfolio
8.00% Dollars Percent
6.00%
7.00%
8.00%
9.00%
10.00%
0 bonds)
Target

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