0 Darshan KadamIntermediate Asked: July 23, 20212021-07-23T17:23:49+05:30 2021-07-23T17:23:49+05:30In: Fixed Income (CFA L1) Fixed income 0 Q21 Share Sorry, you do not have permission to answer to this question. 1 Answer Oldest Shivam Khaitan1 Pro 2021-07-23T19:15:20+05:30Added an answer on July 23, 2021 at 7:15 pm Here you have to find out the percentage change if yield changes by 25BP. Since the yield is falling, bonds price will rise MD measures % change ignoring convexity. So we will find out the exact percentage change (we can say mota moti exact) adjusting the convexity. So MD is 7.020 means for 1%(100BP) change bonds price changes by 7.020%. So for 25 BP it’s 7.020*0.25 = 1.755% STO 1 But this is ignoring convexity. So we will do convexity adjustment Formula is 1/2*convexity* (Δytm)²*100 So 1/2* 65.180* (0.0025)²*100 = 0.020369 STO2 So now we will add this( since price badhta josh me hai… Toh zyada badha hoga… ) RCL1+RCL2 = 1.7754% = 1.78% approx
Here you have to find out the percentage change if yield changes by 25BP.
Since the yield is falling, bonds price will rise
MD measures % change ignoring convexity. So we will find out the exact percentage change (we can say mota moti exact) adjusting the convexity.
So MD is 7.020 means for 1%(100BP) change bonds price changes by 7.020%.
So for 25 BP it’s
7.020*0.25 = 1.755% STO 1
But this is ignoring convexity. So we will do convexity adjustment
Formula is 1/2*convexity* (Δytm)²*100
So 1/2* 65.180* (0.0025)²*100 = 0.020369 STO2
So now we will add this( since price badhta josh me hai… Toh zyada badha hoga… )
RCL1+RCL2 = 1.7754% = 1.78% approx