1.Design the cash flow for a particular investment amount
2.Price a real bond and calculate its yield to maturity, using an Excel spreadsheet.
3.Calculate the total return for an investment horizon.
4.Perform a sensitivity analysis of price, yield and total return.
Chapter Two describes in detail two measurements to estimate the volatility of a bond price: duration and convexity. After reading this chapter you will be able to:
1.Understand clearly the price-yield relationship of an option-free bond.
2.Calculate the duration, modified duration and convexity for real bonds using Excel spreadsheets.
3.Understand why duration is a measure of a bond´s price sensitivity to yield changes.
4.Understand the limitations of using duration as a measure of price volatility and how the duration estimation can be adjusted for a bond´s convexity.