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Bond Duration & Convexity

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0% found this document useful (0 votes)
28 views

Bond Duration & Convexity

Uploaded by

6xknz2knd8
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Settlement Date 2/16/2022 PVIF = FV /(1+r)^n

Maturity Date 2/16/2027


Coupon 10%
Yield 12%
Redemption Value 100

Duration 4.13546178664

Modified Duration 3.69237659521

% Price Change = -1 * Modified duration * Yield change

Year Cash flow PVIF @ 12% yield


1 10 8.9286
2 10 7.9719
3 10 7.1178
4 10 6.3552
5 110 62.4170
92.7904

4.13546178663775
3.69237659521228
Time Weighted PVIF
8.9286
15.9439
21.3534
25.4207
312.0848
383.7314
Find the duration of a 5 year Bond with Rs. 1000 face value and an
Current market rate of interest is 4.5%
Settlement Date 2/16/2022
Maturity Date 2/16/2027
Coupon 4%
Yield 4.50%
Redemption Value 1000

Duration 4.625
Modified Duration 4.426
% Price Change = -1 * Modified duration * Yield change

Year Cash Flow


1 40
2 40
3 40
4 40
5 1040

Macualy Duration 4.625


Modified Duration 4.426
Change in Price for 1% increase in Yield -4.43%
00 face value and an annual coupon rate of 4%.
e of interest is 4.5%

PVIF @ 4.5% Time Weighted PVIF


38.278 38.278
36.629 73.258
35.052 105.156
33.542 134.170
834.549 4172.745
978.050 4523.607
Settlement Date 2/21/2022
Maturity Date 2/21/2052
Coupon 10% Yield Market Price of the Bond
Yield 10% 5% ₹ 176.86
Maturity n 30 6.00% ₹ 155.06
Redemption Value 100 7.00% ₹ 137.23
Duration 10.37 8.00% ₹ 122.52
M Duration 9.43 9.00% ₹ 110.27
10.00% ₹ 100.00
11.00% ₹ 91.31
12.00% ₹ 83.89
13.00% ₹ 77.51
14.00% ₹ 71.99
15.00% ₹ 67.17
16.00% ₹ 62.94
17.00% ₹ 59.19
18.00% ₹ 55.87
19.00% ₹ 52.89
20.00% ₹ 50.21

Year Cash Flow PVIF @ 10% Time Weighted PVIF


1 10 9.0909090909 ₹ 9.09
2 10 8.2644628099 ₹ 16.53
3 10 7.513148009 ₹ 22.54
4 10 6.8301345537 ₹ 27.32
5 10 6.2092132306 ₹ 31.05
6 10 5.6447393005 ₹ 33.87
7 10 5.1315811823 ₹ 35.92
8 10 4.6650738021 ₹ 37.32
9 10 4.2409761837 ₹ 38.17
10 10 3.8554328943 ₹ 38.55
11 10 3.5049389948 ₹ 38.55
12 10 3.1863081771 ₹ 38.24
13 10 2.8966437974 ₹ 37.66
14 10 2.6333125431 ₹ 36.87
15 10 2.3939204937 ₹ 35.91
16 10 2.1762913579 ₹ 34.82
17 10 1.978446689 ₹ 33.63
18 10 1.7985878991 ₹ 32.37
19 10 1.6350799083 ₹ 31.07
20 10 1.4864362802 ₹ 29.73
21 10 1.3513057093 ₹ 28.38
22 10 1.2284597357 ₹ 27.03
23 10 1.1167815779 ₹ 25.69
24 10 1.0152559799 ₹ 24.37
25 10 0.9229599818 ₹ 23.07
26 10 0.8390545289 ₹ 21.82
27 10 0.7627768444 ₹ 20.59
28 10 0.6934334949 ₹ 19.42
29 10 0.6303940863 ₹ 18.28
30 110 6.3039408631 ₹ 189.12
100 ₹ 1,036.96

Duration 10.37
Modified Durati 9.43
Market Price of the Bon
et Price of the Bond ₹200.00

₹180.00

₹160.00

₹140.00

₹120.00

₹100.00

₹80.00

₹60.00

₹40.00

₹20.00

₹0.00
4% 6% 8% 10% 12% 14%

Market Price of the Bond

Weighted PVIF
rket Price of the Bond

12% 14% 16% 18% 20% 22%

Market Price of the Bond

9% 110.27365404
10% 100
11% 91.306207427

Bond Convexity 78.993073478


Change in Price when Yield goes up -8.64%
Change in Price when yield goes down 10.22%
Year Cash Flow PVIF @ 10% weight
1 10 9.091 0.0909090909
2 10 8.264 0.0826446281
3 10 7.513 0.0751314801
4 10 6.830 0.0683013455
5 10 6.209 0.0620921323
6 10 5.645 0.056447393
7 10 5.132 0.0513158118
8 10 4.665 0.046650738
9 10 4.241 0.0424097618
10 10 3.855 0.0385543289
11 10 3.505 0.0350493899
12 10 3.186 0.0318630818
13 10 2.897 0.028966438
14 10 2.633 0.0263331254
15 10 2.394 0.0239392049
16 10 2.176 0.0217629136
17 10 1.978 0.0197844669
18 10 1.799 0.017985879
19 10 1.635 0.0163507991
20 10 1.486 0.0148643628
21 10 1.351 0.0135130571
22 10 1.228 0.0122845974
23 10 1.117 0.0111678158
24 10 1.015 0.0101525598
25 10 0.923 0.0092295998
26 10 0.839 0.0083905453
27 10 0.763 0.0076277684
28 10 0.693 0.0069343349
29 10 0.630 0.0063039409
30 110 6.304 0.0630394086
100.000 1

MOD
Convexity
Convexity Time^2
weighted PV
Duration cashflow
0.0909091 0.1818181818182
0.1652893 0.495867768595
0.2253944 0.9015777610819
0.2732054 1.3660269107301
0.3104607 1.8627639691775
0.3386844 2.3707905062259
0.3592107 2.873685462092
0.3732059 3.3588531375101
0.3816879 3.8168785653524
0.3855433 4.2409761837248
0.3855433 4.6265194731544
0.382357 4.9706407562816
0.3765637 5.2718917112077
0.3686638 5.5299563404277
0.3590881 5.7454091848599
0.3482066 5.919512493492
0.3363359 6.0540468683441
0.3237458 6.1511706148951
0.3106652 6.2133036514092
0.2972873 6.243032377014
0.2837742 6.243032377014 Yield
0.2702611 6.2160062628278
0.2568598 6.1646343102425 C
0.2436614 6.0915358796862 D
0.23074 5.9992398815092 C+D
0.2181542 5.8901627927545 C-D
0.2059497 5.7665929439554
0.1941614 5.6306799789464
0.1828143 5.4844285509218
1.8911823 58.626650027095
10.369606 190.30768492235

9.4269145
157.27907844822 79
-1% 1%

0.00786 0.00786
0.09427 0.09427
10.21%
-8.64%
Face Value 100 PV = FV/(1+r/n)^nt
Coupon 4%
Expected Yield 5%
Maturity 3
Coupon Payment Half Yearly
Settlement Date 2/23/2022
Maturity 2/23/2025
D_MAC 2.85
D_MOD 2.78
Weighted Average
Cash Flow Maturity
Term FV PV Weight Duration
0.5 2 1.9512195122 0.020064792072395 0.010032396
1 2 1.9036287924 0.019575406899898 0.0195754069
1.5 2 1.8571988218 0.01909795795112 0.0286469369
2 2 1.8119012896 0.018632154098653 0.0372643082
2.5 2 1.7677085752 0.018177711315759 0.0454442783
3 102 87.954280328 0.904451977662175 2.713355933
97.245937319 D_MAC 2.8543192593
D_MOD 2.7847017164
n = number of times the amount is compounding
t= time in years

Weighted Average
Maturity^2
Covexity
0.0100
0.0294
0.0573
0.0932
0.1363
9.4967
9.8229
9.3496 Convexity Yield -1%

C 0.047%
D 2.785%
C+D 2.831%
C -D
Est. @ 6% 94.5833885886
Est. @ 4% 99.99940716
1%

0.047%
2.785%

-2.738%

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