duration and convexity

Topics: Bond, Zero-coupon bond, Bond duration Pages: 4 (963 words) Published: February 27, 2015
Example 1-7: FRl\1 Exam 1998--Question 17
A bond is trading at a price of 100 with a yield of 8%. If the yield increases by 1 basis point. the price of the bond will decrease to 99.95. If the yield decreases by 1 basis point. the price of the bond will increase to 100.04. What is the modified duration of the bond? a) 5.0

b) -5.0
c) 4.5
d) -4.5
Example 1-6: FRl\1 Exam 1998--Question 22
What is the price impact of a 10-basis-point increase in yield on a 10-year par bond with a modified duration of 7 and convexity of 50? a) -0.705
b) -0.700
c) -0.698
d) -0.690
Example 1-8: FRl\1 Exam 1998--Question 20
Coupon curve duration is a useful method for estimating duration from market prices of a mortgage-backed security (MBS). Assume the coupon curve of prices for Ginnie Maes in June 2001 is as follows: 6% at 92. 7% at 94. and 8% at 96.5. What is the estimated duration of the 7s? a) 2.45

b) 2.40
c) 2.33
d) 2.25
Example 1-9: FRl\'1 Exam 1998--Question 21
Coupon curve duration is a useful method for estimating convexity from market prices of an MBS. Assume the coupon curve of prices for Ginnie Maes in June 2001 is as follows: 6% at 92. 7% at 94. and 8% at 96.5. What is the estimated convexity of the 7s? a) 53

b)26
c) 13
d) -53
Example 1-10: FRM Exam 2001-Question 71
Calculate the modified duration of a bond with a Macauley duration of 13.083 years. Assume market interest rates are 11.5% and the coupon on the bond is paid semiannually. a) 13.083
b) 12.732
c) 12.459
d) 12.371
Example I-II: FRl\'1 Exam 2002-Question 118
A Treasury bond has a coupon rate of 6% per annum (the coupons are paid semiannually) and a semiannually compounded yield of 4% per annum. The bond matures in 18 months and the next coupon will be paid 6 months from now. Which number is closest to the bond's Macaulay duration? a) 1.023 years

b) 1.457 years
c) 1.500 years
d) 2.915 years
Example 1-12: FRM Exam 1998-Question 29
A and B are two...
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