MUST USE EXCEL AND SHOW FORMULAS:
Submit as ONE excel file (for written answers, use Insert > Text Box). Show all work for full credit (any calculated cell in excel must contain a formula). Make sure your presentation is clear and answer in order, a separate tab for each question. You may use a separate tab for graphs (they must be visible when the sheet is scrolled all the way up, and not obscure any data). Rename tabs e.g. from Sheet1 to Q1-a, Q1-b, etc.
1. [10 pts] Using excel, plot graphs of the modified duration and convexity versus the note (contract) rate c (for 1% ≤ c ≤ 20%) of a 30 year, fully amortizing, fixed rate, par mortgage. Annotate cells to show work. Assume that the mortgage never prepays/curtails, nor does it ever default.
2. [10 pts] Use the duration and convexity for c=5% in the previous question to plot the percentage error in the percentage price change in the mortgage when yields change in the range of -3% to +3%, using
a. Duration only, and
b. Duration and convexity together.
Assume par pricing today.
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