Hey guys, maybe I’m making too much of this ? but, (I excluded the easier ?'s on Mac D, yield, etc.) can someone please help: Bond with no embedded options: Price: 98.573 Price after 20 basis point increase in yield curve: Price after 20 basis point decrease in yield curve: Z-Spread: Option Adjusted Spread: Modified Duration: 4.4 Convexity Measure: 12 Bond with embedded options: Price: 101 Price after 20 basis point increase in yield curve: 101.633 Price after 20 basis point decrease in yield curve: 100.426 Z-Spread: 76 Option Adjusted Spread: 135 Modified Duration: Convexity Measure: A. Compute the cost of the embedded option as a risk Premium? Par Value? - I’m not sure what they are asking for. B. Effective Duration of the option embedded bond? Effective Convexity? - I keep getting a huge number, any suggestions? C. Expected percentage price change of the bond having embedded options due to its effective duration given a 60 basis point upward parallel shift in the Treasury yield curve?
That is a tough question, the duration and convexity are just simple calculations. Letters A and C i am not too sure.
If you place it into Excel you might be able to solve easier, I have no idea what A is