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Fixed Income Analysis: Duration-Convexity

Fixed Income Analysis Duration-Convexity in this workbook, you will learn how to calculate the folowing for a plain vanilla coupon bond: I. Market Price ii.macaulay Duration iii.modified Duration iv.convexity. Visit www.edupristine.com to download more spreadsheets from our Xcel in Fixed Income Analysis - workbook Series.

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65 views

Fixed Income Analysis: Duration-Convexity

Fixed Income Analysis Duration-Convexity in this workbook, you will learn how to calculate the folowing for a plain vanilla coupon bond: I. Market Price ii.macaulay Duration iii.modified Duration iv.convexity. Visit www.edupristine.com to download more spreadsheets from our Xcel in Fixed Income Analysis - workbook Series.

Uploaded by

naveen.ibs
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Fixed Income Analysis

Duration-Convexity

In this workbook, you will learn how to calculate the folowing for a plain vanilla
coupon bond:
i. Market Price
ii.Macaulay Duration
iii.Modified Duration
iv.Convexity

Visit www.edupristine.com to download more spreadsheets from our Xcel in


Fixed Income Analysis Workbook Series
Contact Us:
+1 347 647 9001
Pristine

www.edupristine.com
[email protected]

Analysis

ll learn how to calculate the folowing for a plain vanilla

om to download more spreadsheets from our Xcel in


Workbook Series

Question

Consider a 5 year United States Treasury Note. Its coupon is 10%. The current market
rate is 5%. If its face value is $100, compute the following:
a. Market Price
b. Macaulay Duration
c. Modified Duration

Duration
Coupon
Face Value
Tenure
Market Rate

USD
Years

10%
100
5
5%
1-Jan-10
Year 0

Years of Cash Flow


Discount Factor

1/(1+y)^t
1/(1+y)^(t+1)
1/(1+y)^(t+2)

Cash Flows from the Bond


Coupons
Face Value
Total Cashflow from the Bond

150

Present Value of Cash flows from the Bond

USD

Duration Calculations
% of the Cash Flows this Year
Duration Contribution of the Year
Duration of the Bond

121.65

Years

4.25

Modified Duration
Modified Duration Using Excel Formula

4.05
4.05

Convexity Calculations
Convexity Contribution of the Year
Convexity of the Bond

8.0

21.83

Duration vs. Tenure

7.0

Market Rate
@ 10%

5.0
4.0

Market Rate
@ 1%

3.0
2.0

1.0

Market Rate

6.0

5.1
5.0
4.9
4.8

10

Macaulay Duration
Coupon Rate

Coupon Rate

4.8
4.7
4.6
4.5
4.4
4.3
4.2
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1-Jan-11
Year 01
1.0
0.9
0.9

1-Jan-12
Year 02
0.9
0.9
0.8

31-Dec-12
Year 03
0.9
0.8
0.8

1-Jan-14
Year 04
0.8
0.8
0.7

1-Jan-15
Year 05
0.8
0.7
0.7

1-Jan-16
Year 06
0.7
0.7
0.7

31-Dec-16
Year 07
0.7
0.7
0.6

10
10

10
10

10
10

10
10

10
100
110

8%
0.08

7%
0.15

7%
0.21

7%
0.27

71%
3.54

0%
0.00

0%
0.00

0.07

0.14

0.20

0.26

3.37

17

49

94

149

2,345

Check by changing the yield to 9.99%. Price must change to


100.0379

Modified
Duration

Tenure of the Bond


4.05
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%

1
1.0
1.0
1.0
1.0
1.0
0.9
0.9
0.9
0.9
0.9

Macaulay
Duration
0%
1%

4.25
5.0
4.9

2
1.9
1.9
1.9
1.8
1.8
1.8
1.8
1.8
1.8
1.7

3
2.7
2.7
2.7
2.6
2.6
2.6
2.6
2.5
2.5
2.5

4
3.5
3.5
3.4
3.4
3.4
3.3
3.3
3.2
3.2
3.2

5
4.3
4.2
4.2
4.1
4.1
4.0
3.9
3.9
3.8
3.8

6
5.0
4.9
4.8
4.8
4.7
4.6
4.6
4.5
4.4
4.4

2%
3%
4%
5%
6%
7%
8%
9%

4.8
4.7
4.6
4.5
4.5
4.4
4.4
4.3

1-Jan-18
Year 08
0.7
0.6
0.6

1-Jan-19
Year 09
0.6
0.6
0.6

1-Jan-20
Year 10
0.6
0.6
0.6

0%
0.00

0%
0.00

0%
0.00

7
5.7
5.6
5.5
5.4
5.3
5.2
5.1
5.0
5.0
4.9

8
6.3
6.2
6.1
6.0
5.9
5.8
5.7
5.5
5.4
5.3

9
7.0
6.8
6.7
6.5
6.4
6.3
6.1
6.0
5.9
5.8

10
7.6
7.4
7.2
7.1
6.9
6.8
6.6
6.4
6.3
6.1

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