For the bond with a coupon of 5.5% paid annually, with 10 years to maturity and a YTM of 6.10%, calculate the duration and modified duration. Calculate the price change for a 50 basis point drop in yield using duration plus convexity.

Calculations and Analysis

a) For the bond with a coupon of 5.5% paid annually, with 10 years to maturity and a YTM of 6.10%, calculate the duration and modified duration. (3 marks)
b) For the bond described in a) above, calculate the convexity. (3 marks)
c) Calculate the price change for a 50 basis point drop in yield using duration plus convexity. (2 marks)
d) Samantha and Roberta are discussing the riskiness of two treasury bonds A& B with the following features:
Bond Price Modified Duration
A 90 4
B 50 6
Samantha claims that Bond B has more price volatility because of its higher modified duration.
Roberta disagrees and claims that Bond A has more price volatility despite its lower modified  duration. Who is right