What is the security dollar price and yield to maturity

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Reference no: EM131583308

Consider the following step up security ($1,000 par) with semi-annual coupons (all CFs are at the end of the semi-annual): Year 1 2 3 Coupon rate 3% 4% 5% The BEY rates to evaluate the security are 2%, 3% and 4% for year 1, 2 and 3 respectively (i.e. use 5% BEY to discount the CF at end of year 3 to beginning of year 3). A manager plan to buy the security at beginning of year 2 (after the 2 coupon payments) and hold it to maturity.

Calculate the following:

a. What is the security’s dollar price, and yield to maturity if the manager purchases the security at the beginning of year 2?

b. What are the security Mac Duration, and Mod Duration at the beginning of year 2, use YTM from part (a) in the calculation?

c. At the beginning of year 2, what are the bond convexity and approximate convexity assume a 20 bps shock, use YTM in the calculations?

Reference no: EM131583308

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