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  3. Bond Valuation and Analysis in R

Exercise

The estimated price change using duration and convexity

In the prior exercises, you estimated that if yields increase by 1%, you can expect a dollar effect due to duration of -6.790577 and dollar effect due to convexity of 0.285045. These two values are stored in the objects duration_dollar_change and convexity_dollar_change, respectively. You also know that the bond has a current price of $97.17106, which is stored in the workspace as the object px.

Recall from Chapter Three that accurate price estimations should take into account both duration and convexity. In this exercise, you will be asked to calculate the estimated change in the price based on duration and convexity. You'll then calculate the new estimated price assuming a 1% increase in yields.

Instructions

100 XP
  • Estimate total change in price given a 1% increase in yields based on duration_dollar_change and convexity_dollar_change. Save this value to price_change.
  • Use price_change to calculate the new_price of your bond!