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The continuously compounded yield curve is given as follows:0.5 year to maturity, yield = 5%1 year to maturity, yield = 5.5%1.5 year to maturity, yield = 6%2 year to maturity, yield = 6.5%Calculate the duration and convexity of the following securities:A 2 year coupon bond paying 4% semi-annuallyA 1 year floating rate bond with a 50 basis point spread, with coupons paid semi-annually. Compute its duration and convexity immediately after issuance (i.e. the first coupon is fixed)Construct a duration hedge for the 2 year coupon bond using 6 month zero coupon bondConstruct a duration and convexity hedge for the 2 year coupon bond using 6 month and 1 year zero coupon bond
The continuously compounded yield curve is given as follows:
0.5 year to maturity, yield = 5%
1 year to maturity, yield = 5.5%
1.5 year to maturity, yield = 6%
2 year to maturity, yield = 6.5%
Calculate the duration and convexity of the following securities:
- A 2 year coupon bond paying 4% semi-annually
- A 1 year floating rate bond with a 50 basis point spread, with coupons paid semi-annually. Compute its duration and convexity immediately after issuance (i.e. the first coupon is fixed)
- Construct a duration hedge for the 2 year coupon bond using 6 month zero coupon bond
- Construct a duration and convexity hedge for the 2 year coupon bond using 6 month and 1 year zero coupon bond
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