Fixed Income-DV01, Macauley and Modified Duration and Convexity calculation

Problem 1: Use the zero-coupon curve you created in HW2 to compute the par rates for semiannual pay bonds with maturities ranging 1 year to 25 years.

Problem 2: For each of these bonds, compute their DV01.

Problem 3: Compute the Macauley and modified for the 1,2,3,4 and 5 year bonds in problem 1 above.

Problem 4: You have a $5,000,000 liability due in 3 years. How much do you need to invest in a 3 year zero-coupon bond to defease the liability? Use the same zero-coupon curve as in 1.

Problem 5: Using the data in question 1, compute the convexities of the 1,2,3,4 and 5 year bonds.

Problem 6: Use the computed dollar durations and convexities for the 1,2,3,4, and 5 year bonds, compute the price change of a 100 basis point upward and downeard parallel shift in the zero-curve. Compare the price changes with actual price change obtained by recomputing the price of the bond from shifted spot curve.