Bond Price

Face Value
Coupon Rate
Life in Years
Yield
Frequency
Macaulay Duration
Modified Duration
Convexity
Period
0
1
2
3
4
5
6
7
8
9
10
11
12

$1,000.00
1,000
8.00%
6
8.00%
2

$954.41
1000
8%
6
9%
2

4.88
4.69
27.23
Cash Flow
($1,000.00)
40.00
40.00
40.00
40.00
40.00
40.00
40.00
40.00
40.00
40.00
40.00
1,040.00

If Yield Changes By
Bond Price Will Change By

1.00%
-45.59

Modified Duration Predicts

Convexity Adjustment
Total Predicted Change

-46.93
1.36
-45.56

Actual New Price

Predicted New Price
Difference
PV Cash Flow
38.46
36.98
35.56
34.19
32.88
31.61
30.40
29.23
28.10
27.02
25.98
649.58

Duration Calc
38.46
73.96
106.68
136.77
164.39
189.68
212.78
233.82
252.93
270.23
285.82
7,794.97

$954.41
$954.44
$0.03
Convexity Calc
71.12
205.15
394.53
632.25
911.90
1,227.56
1,573.79
1,945.62
2,338.49
2,748.23
3,171.03
93,689.56

Total

9,760.48

108,909.24

-4.56%
-4.69%
0.14%
-4.56%

D Mac=

C=

(
t =1

1
( 1+i )2

CF t

1+i )
VB

t =1

CF t

( 1+ i )
VB

2
(
t
+t )
t