A 9-year maturity zero-coupon bond selling at a yield to maturity of 8.25% (effe

Question

A 9-year maturity zero-coupon bond selling at a yield to maturity of 8.25% (effective annual yield) has convexity of 156.3 and modified duration of 8.06 years. A 30-year maturity 6.5% coupon bond making annual coupon payments also selling at a yield to maturity of 8.25% has nearly identical duration

A 9-year maturity zero-coupon bond selling at a yield to maturity of 8.25% (effective annual yield) has convexity of 156.3 and modified duration of 8.06 years. A 30-year maturity 6.5% coupon bond making annual coupon payments also selling at a yield to maturity of 8.25% has nearly identical duration

Explanation / Answer

Now YTM Increased to 9.25% then Loss/Gain-

Volatility=Duration/(1+YTM)

Volatility means every 1% change in YTM the price of Bond will change in opposite direction equal to Volatility Times.

Zero Coup. Bond Coup. Bond YTM(%) 8.25 8.25 Time to maturity 9 Year 30 Year Intt. Rate 0 6.50% Duration (Year) 8.06 8.04 Convexity 156.3 248.2

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