4 - Bonds (fin) Flashcards

Question

loan based crowdfunding+ risks?

Answer 1

crowfunding = popularized following GFC - way of financing debt through raising via from a large no. of people loan based aka P2P - consumers lend to bis directly for interest payment and repayment of capital over time - bypasses traditional banks - returns are financial -primarily for profitable SMEs, not really suitable for startups Risks - no FSCS recourse - may have difficulty cashing in (some platforms do have 2ndary market tho) - capital at risk

Answer 2

consumers invest in comp by buying shares or debentures - can also refer to mini/crowd bonds which is a way investors lend directly to bis Risk - high risk - potential for loss of capital funding entrepreneurial endeavours - may have little recourse in case of default/fraud - dilution risk as likely multiple rounds of funding - long investment periods - risk platform could fail or become insolvent - secs not transferable, most platforms have no 2ndary market - difficult to cash in early

Answer 3

UK = FundingCircle--- US=Lending Club Fudingcircle - 2010 - P2P crowdfunding platform , listed in 2018 on lse - enables investors to lend to small comps - mechs have changed over time - used to allow retail investors to pick who they lent to - suspended this in 2017 citing lack of diversification and risk to retail investors

Answer 4

FCA regs both loan and investment based crowdfunding - banned sale on mini bonds to retail investors in 2020 - substantially decreasing popularity of investment based crowdfunding - they did this after many mini bond scandals - e.g. collapse of mini bon dprovider london capital finance - promised 8% interest and risked >£200mili invested by 11k people

Answer 5

fintech has potential to transform bond markets - large fin instit are experimenting w/ issues on blockchains capexmove - bond tokenisation platform - digitises tradition debt instruments into smart legal contracts and issues tradable units bond evalue - breaks down large denomination bonds into smaller denominations suitable for retail investors approved in 2020 by monetary authority of Singapore as a recognized market operator

Answer 6

govs issue bonds to raise money to cover deficits, fund projects etc - easy for govs like UK with high credit rating low risk as as government backed - though govs can default Argentine has defaulted 9 times in history - May 2020 - failed to make $500mn interest payment on foreign debt

Answer 7

UK - issued by DMO (executive agency of treasury), also servies and manages gilts US - US treasury handles secs issued by US gov in form of T bonds, notes and bills, also issues gov sponsored entities which involve ABSs EU - countries retain control over its own debt - even eurozone

Answer 8

historically only a small fraction of global bond market due to limited issuance, poor data qual, market illiquidity, regular economic crises Brady bonds - US treasury sec nicholas brady issued first EM gov bond by converting many latin american defaulted bank loans to collateralized ZCBs. issued in USD to reduce currency risk (political instability etc) now - improved credit ratings, stronger gov balance sheets, much sovereign debt considered IG

Answer 9

conventional 75% - fixed, semi annual coupon. receive principal + final coupon @ redemption ILG - approx 1/4 of UK debt coupon payments and principal adjusted in line with RPI (8 month lag before sep 05, 3 month lag after) will have no uplift in period of zero deflation during deflation - depends on if gilt has deflationary floor STRIPS practise of stripping coupon and bond apart, so CFs and principal are separated holder of prin basically has ZCB, which trades at discount to NV holder of coupons analogous to annuity (if coupons split up they are also baso ZCB) good for liability matching - no reinvestment risk as usual with coupon paying gilts only some gilts are designated 'strippable' by DMO and stripped by GEMMs dual dated - none in issue rn foreign currency debt issues - issued to finance foreign currency reserves. USD and euro outstanding rn. trade like eurobonds with same conventions for accrued interest green gilts first issued in 2020 to mean green obj Green Gilts issued in Sep 2021. Plan to raise £15bn to fund clean transport, climate change adaption, renewable energy, energy efficiency, pollution prevention and control and living and natural resources NSI green savings bonds fixed term investments where saving contribute to green projects - rate fixed for 3 yrs, taxable but paid gross. no floating rate or convertible in issue since 01

Answer 10

no. of bids received / no. of bids accepted (or can use £ amount / £ amount) >2 = successful auction - strong demand <1 = failure - amount bid < amount offered low ratio = disappointing auction - marked by higher yield

Answer 11

competitive auction - pay the amount bid up to the amount the DMO wishest to raise highest to lowest non-competitive tender - up to 500k NV where applicants revieve NV they applied for @ weighted avg price of successful competitive bids PAOF - post auction option facility successful bidders have option to acquire additional 10% of gilt allocation @ average accepted price Interim funding/TAPS issuance of smaller quant of stock to improve liquidity or market efficiency - DMO sells to GEMMs (often tranche of existing stock or result of failed auction )

Answer 12

must be vetted by DMO and LSE - then become primary dealers obligations - to make effective 2 way prices to customers on demand up to size agree with DMO = provide liquidity (excluding other GEMMS, fixed interest MM or gilt IDB) - to participate in gilt issuance programme, bidding competitively - baso underwriting gilt auctions - provide DMO with closing prices, market conditions and GEMMs positions/turnover privileges - executive rights to competitive telephone bidding @ gilt auctions and other DMO ops - exclusive facility to trade as counterparty to DMO -exclusive access to gilt IDB screen firm can register to be a GEMM on - all gilt edged secs -IL gilts only - gilts excluding IL

Answer 13

non GEMM LSE members that can buy/sell gilts as agent (broker) or as principal (dealer) - as broker - bound by LSEs best ex rules - must identify with GEMM if deal is a small one from outset i.e. <1mili

Answer 14

arrange deals anonymously between GEMMs cannot take principal positions IDB acts as angel - but settles transaction as in it were the principle can only act as principal between GEMMs

Answer 15

supported by GEMMs who must ensure two way quote exists @ all times secondary market for ILG may be less liquid than straights

Answer 16

inverse rates increase - fixed val of coupon less attractive vs rate on deposited funds - price down rates decrease - fixed val of coupon more attractive vs rate on deposited funds - price up

Answer 17

repo = sale and repurchase - legally binding borrower - sells gilts and agrees to buy back @ future date @ set price with interest @ repo rate inferred in the repurchase price baso ST lending w/ gilt as collateral If coupon due during repo must be paid back to orig owner - stated in repo agreement buyer/lender has entered into a reverse repo borrower = able to raise finance against security of gilts - potentially @ cheaper rate lender = if lender is bank - benefit of repo is security of gilt vs conventional finance if lender = GEMM - repo enables GEMM to access gilts it requires to meet settlement obligations

Answer 18

ensures smooth running of gov bond market enables GEMMS to enter into reverse repo with DMO to e.g. cover short position in bonds must first sign the relevant documentation provided by CB above £5mn NV next day settlement can be rolled forward for up to two weeks other countries also have SRF in UK DMO charge higher than normal repo rate

Answer 19

creation of short position in debt instrument - where buyer/lender immediately sells security provided by borrower/seller on open market on settlement date - buyer acquires gilt in market (hoping to profit from fallen price) and delivers to seller

Answer 20

- pool large blocks of secs from instit investors (pension funds, insurance brokers) - secs then loaned out to borrowers to cover their short position - once short position is closed out (borrowers purchased secs elsewhere), bonds returned to instit - SBLI charges fee 0.5% split between themselves and lenders of secs - minimal activity in UK since 96 due to intro of repo market instit investors dont have to do anything - just receive fee with repo - they would have to invest money paid to make return

Answer 21

UK - settle T+1 in CREST (certificates registry for electronic share registration) - part of Euroclear UK and Ireland CREST is the CSD, regulated by the BoE with RCH status

Answer 22

same day clearing system allows shareholders/bondholders to hold assets in dematerialized form clears trades by matching settlement details of buyers and sellers UPDATES SHAREHOLDER REGISTER - settles when CREST updates the register of relevant company to transfer shares to buyer ISSUES PAYMENT OBLIGATION - bank to transfer £ to seller ISSUES RECEIPT NOTIFICATION - to sellers bank to expect payment ETC (electronic trade confirmation system) - both parties to transaction required to confirm sides of transac via file transfer - submit confirmation details to CREST - if they dont match CREST highlights this LCH - clearing house for OTC trades (CREST/Euroclear) which is responsible for settling transaction with each CP other functions - custodianship -assisting w/ divi payments -handing corp actions on behalf of clients it reps - collects SDRT CREST members are either - members - large instits used by sponsored members to provide access - sponsored members

Answer 23

IR and inflation expectations are explicit in bond derivs - these are a driver of bond prices 10 yr treasury note contract - one of most activity traded futures contracts - trades of CBOT - v good liquidity - vehicle to hedge exposure to variety of fixed income instruments - speculation opp (on IR spread between IG and HY bonds vs UST) bond futures = cash or physically settled (cheapest to deliver bonds) arbitrage opps will quickly eliminate price discrepancies regarding cheapest to deliver bonds

Answer 24

debenture = loan with some specified security loan stock/unsecured loan stock = loan with no security provided - in UK market tends to be comps with high credit rating or status loans w/out security have higher coup to compensate for risk

Answer 25

bonds issued outsideof the country whose currency they are denominated in - allows orgs to issue debt w/out being restricted to domestic market bearer form (comp doest keep record of holders) - safekeeping is important - so often held in depositories/ CH - 'immobilisation' unsecured debt (highly rated comps) OTC trading no WH tax (CH keeps register but not avail to gov) coupons taxable but paid gross + annual vanilla (annual coupon) or ZCB, FRN, stepped coupon trades matched through TRAX ICMA self regulatory system t+2 settlement accrued interest 30/360

Answer 26

aka overseas bonds - bonds issued in a domestic market by a foreign comp in domestic market's currency eurobond - currency is different from the domestic market currency regulated by domestic market authorities useful for investors as can add foreign credit without fx exposure

Answer 27

2 types of legal charge a comp can issue over its assets - fixed or floating fixed - over definable asset of company identified in deed of debenture - usually asset whose val wont decrease over term of debenture -comp cannot sell asset w/out lender's permission (debenture holder wont do this unless they are offered equally good asset as replacement) if comp fails coupon or principal payment - holder can - appoint receiver + get income from assets under charge - take possession of asset and sell - using income to repay debentures - return excess proceeds to comp - any shortfall will be unsecured liability of comp

Answer 28

2 types of legal charge a comp can issue over its assets - fixed or floating floating charge =equitable charge on all comps assets, both present and future - so comp can use assets in normal course of bis - e.g. stock, works in progress, plant and machinery, vehicles, premises good for comp as bis can continue as ussual - charge floats over asset until debenture 'crystallizes' - failure to meet terms of cap or income payments -liquidation - cessation of trading cystallisation -charge fixes on assets currently owned by comp

Answer 29

bullet, serial, optional bullet - most bonds - principal val paid all @ once on maturity date non-callable serial - principal amort redeemed in installments @ regular intervals til maturity optional issuer (sometimes holder) has option to redeem bond e.g. double dated - can redeem @ either date but must redeem at later one

Answer 30

either w/ no or low coupon (substantially lower than current IR) issued at discount to NV - reflecting prevailing IR longer maturity = greater discount deeply discounted if bond sold >20% below par earnings treating as income rather than cap gain - considered to be accrued over lifetime of bond adv - issuer not burdened by full interest cost in early years

Answer 31

bonds where coup fluctuates with a market rate of interest e.g. SONIA, ESTR, SOFR, SARON, TONAR coupon = reference rate + quoted spread above ref rate (bps) possible additions : drop lock - IR becoming fixed if it falls to specific level cap- ceiling on rate to protect issuer collared/mini max - floor and ceiling floors - floor or rates - wont fall below this level (can rise back up unlike drop lock) inverse floaters - pay variable coup that changes in op direction to ST IR subtracts benchmark from set coupon rate e.g. 6% - SONIA

Answer 32

coupon and redemption in different currencies rate could be determined @ outset ot spot rate @ time of transaction can also be designed w/ an option to use a mixture of currencies

Answer 33

either by issuing convertible or by attaching a warrant might allow issuance w/ lower coupon

Answer 34

gives holder right not obligation to conert bond into predetermined no. of ordinary shares of issuer @ fixed price @ set time @predetermined conversion ratio e.g. (25 shares per 100 NV) holders only exercise if share price more attractive than prevailing market price exposes holder to growth potential in rquity while retaining safety of bonds - trade at prem to shares they can convert into

Answer 35

until converted or maturity - react to changes in yield and IR like other bonds employed as deferred shares - issuers expect conversion @ conversion date/period predefined conversion ratio - e.g 25 per 100 NV (maybe with price per convert too) conversion right may only be on maturity or may exist for period of time lower coup than straight corp subordinated debt instruments poss additions - put rights - to force early redemption normally at premium to par - call rights - under certain conditions @ certain price

Answer 36

Advantages - lower coupon issuance - no immediate dilution of shareholder control - no assets required to secure straight finance - good for finance projects with LT payback - less EPS dilution than normal share/bond issue - interest payments tax deductable unlike equity finance Disadvantages - coupon payments required even if comp makes no profit unlike divi payments - if poor performance - would have to redeem for cash if holder chooses not to convert - cannot be sure firm is issuing deferred share cap as may not convert - future dilution of shareholders

Answer 37

advantages - security of fixed income with downside protection if shares fall with option to participate in uplift from + share price performance - higher coupon vs divi yield (lower than straight corp) - very liquid vs straight corp - above shares in liquidation disadv - unsecured, lower ranking debt - lower repayment piroiry -often callable -dilution of existing shareholding on conversion -if cshares go down - yield sacrified vs corp with no benefit - lower yield than corp (higher than corresponding eq)

Answer 38

no. of shares the bond can be converted into e.g. x shares per £100 NV ratio = NV/conversion price

Answer 39

convertible price/no. of shares can use NV if converting at maturity

Answer 40

current share price x conversion ratio conversion ratio = NV/conversion price

Answer 41

conversion price - share price /share price

Answer 42

via syndicate of international banks eurobond issuers dont keep record of holders - bearer docs IB who originate issues have develeoped various types

Answer 43

most common method in primary, domestic bond market is via placement

Answer 44

most common method in primary, domestic bond market is via placement issuer appoints lead manager - awards them w/ mandate LM empowered + obligated to issue bond on behalf of issuer +ensure issue is taken up - failed placement does reputational damage to LM and issuer - agrees bond terms with issuer (can change as market conditions dictate) -Best efforts or Bought deal (commitment of LM to purchase entire issue - puts risk on LM balance sheet) LM can create management group of other issuing houses - each house receives % of deal and places with clients -Or LM can run entire book and omit management group variation - fixed price re-offer -members of management group not permitted to sell below issue price in 2ndary market unit syndicate terminates - this happens when LM believes most of issue has been placed

Answer 45

limited secondary market both in domestic and euromarket most issues not actively traded - market therefore not well structured with little involvement from MM mostly - away from major XC in decentralized market - dealer provide liquidity either between dealers or between dealers and customers D2D = - phone call - indirect with IDB broking deal - via electronic market - electronic trading platform eg MTS

Answer 46

for semi annual bond HALVE COUPOUNS HALVE DISCOUNT RATES DOUBLE TIME PERIODS (TO WHOLE NUMBERS)

Answer 47

PV = discounting future values of CF back to today in accordance w/ prevailing IR (coupons and redemption) NPV = PV of cash flows - current price For semi annual = Halve coupons and discount rate. Use FULL NUMBER time periods

Answer 48

inverse relationship between yield and price when coupon rate = interest rate/desired yield - PV = NV

Answer 49

r = rate/desired yield n= no. of period Use formula to work out PV of coupons and ADD PV of redemption payment

Answer 50

PV = A/r A= amount of periodic payment r = yield/discount rate/interest rate baso a perpetuity of CFs = irredeemables value is baso finite as CFs very far in future will have negligible PV

Answer 51

price = PV of redemption amount = FV/(1+r)^n for strips value each CF individually

Answer 52

CFs change w/ inflation relative to reference date (3M prior for bonds issues since Sep05, 8 months for bonds before) uplift CF by inflation price bond using uplifted CF UPLIFT FINAL PRICE BY RPI TODAY/RPI @ ISSUE

Answer 53

value of bond/quoted price is clean price - but they settle on dirty price (clean price+ accrued interest) dirty price increases up to ex div date then falls ex div date gilts -7 bis days before payment

Answer 54

when holder register is taken 7 bis days before payment date

Answer 55

period coupon x accrued days/days in period accrued days= last coup date up to and including day before settlement date days in period - last coupn date to and including day before next coupon

Answer 56

accrued interest subtracted from buyers costs as purchase does not include next coup dirty price = clean price - accrued interest (PERIOD coupon x accrued days/days in period) accrued days = days from settlement to next coup

Answer 57

accrued interest subtracted from buyers costs as purchase does not include next coup dirty price = clean price - accrued interest (PERIOD coupon x accrued days/days in period) accrued days = days from settlement to next coup

Answer 58

New style gilts quoted excluding inflation calc accrued interest + to clean price uplift both by inflation

Answer 59

cash return as % of cash price - ignores cap gain/loss @ redemption = better for ST investors who wont hold to maturity - good for irredeemables or ST cash returns - ignores timing of cash flows and time val of $ - useless if coupon isn't constant uses clean price

Answer 60

good way to estimate GRY -considers returns, income and cap better than flat yield useful for non taxpayer who will hold to maturity ignores timing of CFs and time val of $ assumes linear growth not compoind growth - can overstate effects of cap gain/loss uses clean price worse if bond is further from maturity

Answer 61

basically IRR of the bonds cash flows more appropriate for LT investors than FY as takes coupons and gain/loss @ maturity into account - best for LT, non taxpaying investors - pension funds and charities 1) calculate JGRY to give indication of yield (coupon + gain/loss@maturity / years to maturity) / clean price 2) calculate NPV (N1) using R1 (rate below JGRY) - should be pos 3) calculate NPV2 (N2) using R2 (rate above JGRY) - should be neg 4) calculate GRY by interpolation

Answer 62

JGRY will overstate GRY if gain @ redemption and understate if loss @par - flat yield = JGRY = GRY above par (loss to redemption) = JGCRY

Answer 63

GRY is best - even though interpolation isnt exact as relationships non linear - considers timing of CF, time val of $, coup and redemption limitations GRY based on IRR assumes interest rates remain same throughout lifetime - and so coupons revinvested@same rate as yield if bond not held to maturity - return will be a function of price of the bond GRY baso ignores that ROR will vary with rates over lifetime of bond

Answer 64

JGRY using net coupon as no CGT on gain convention is to assume 40% rate

Answer 65

same as GRY but net coupon down using marginal rate 1) calculate JGRY to give indication of yield (with netted coup) (coupon + gain/loss@maturity / years to maturity) / clean price 2) calculate NPV (N1) using R1 (rate below JGRY) - should be pos 3) calculate NPV2 (N2) using R2 (rate above JGRY) - should be neg 4) calculate GRY by interpolation

Answer 66

using IRR - surmounts issues of FY and JGRY (includes times val of $, timing of CFs, gain/loss@ redemption) limitations - same as GRY - only represents return received if rates remained stable through lifetime

Answer 67

half rates and half coupons do GRY as normal then double @ end - approximation as it ignores compounding effect of rates within a year

Answer 68

can use this formula to work out r = yield

Answer 69

will usually be asked for 'real and nominal GRY' 1) divide inflation adjusted price by index ratio to get clean real price 2) use interpolation to calc real GRY using real price 3) calc nominal yield using fisher relationship (1+i)= (1+r)(1+R) i = nominal r=real R= infatlion (1+nom)=(1+real)(1+inflation) 8m lag bonds quoted inflation adj 3m lag quoted clean (but exam may give infl adjusted)

Answer 70

normally upward sloping - longer dated bonds giving higher yield vs shorted to reflect additional risk or variability in pricing + lack of liquidity curve flattens in long end due to demand from pension companies inverted - market thinks rates are falling

Answer 71

liquidity pref theory - longer term commitment = higher compensation required - explains upward sloping curve - people desire liquidity so must be compensated more if they are lending for longer(3 motives) - spot rates are the egg - forward rtaes and yields derived from them pure expectations theory - shape varies according to rate expectations -steep upwards = expecting rate rising, increased demand for ST bonds -downward = rates expected to fall, want to lock current rates in now -flat curve - no expected change in rates - argues that curve is reflection of spot rates which are reflection of forward rates (yield = weighted avg of spot rates which are geometric mean of forward rates) - yield curve reflection of spot rates and spot rates reflection of forward rates (egg) preferred habitat/segmentation - different investors in different segments of maturity spectrum - pensions/insurance companies at long end - banks in short end - 2 nds of curve have life of their own since they react differently to same data

Answer 72

Keynes transactions motive - need for cash for current transactions of personal/investment bis precautionary motive - desire for security to meet unexpected costs speculative motive- cash to speculate on market movements decrease in rates = icrease in quant of money demanded by people

Answer 73

= rate of interest demanded for deposit/borrowing from today to a specific point in time (i.e. 1 yr) AKA zero coupon rate DCF uses same rate to discount CF - better method to value fixed income is to view as composite investment made up of several discrete CFs with different discount rates

Answer 74

ST avail in money markets - widely available is UST market Longer maturities - avail in ZCB or STRIPS market less developed market - derived from series of straight bond prices if GRY, coupon are also known

Answer 75

bootstrapping use 1 yr bond to find 1 yr spot rate (will be same as yield as only 1 CF) then use 1 yr rate to find 2 year rate - as 2 yr bond is a DCF of 2 CFs - so discount 1yr coupon by 1 year spot rate

Answer 76

rate of interest agreed today for deposit/borrowing from 1 future date to another allows you to lock in rate today for future deposit/borrowing to avoid adverse interest rate movements in future way of hedging exposure to IR risk - as prevailing rate may be better/worse than forward rate you lock into e.g. 1D2 = starts in 1 year, ends in 2 years

Answer 77

arbitrage - should be no difference between investing for 2 years vs investing for 1 year and rolling over @end SO calc 1 yr spot rate then 2 year sport rate then rearrange for forward rate

Answer 78

are spot rates determined by consensus for required rets for periods from now - and forward rates derived from this? OR are forward rates established by consensus on future dates from which spot rates are deduced

Answer 79

spot rates are geometric mean of forward rates - smoother curve than forward rates yield is weighted avg of spot rates - less vol that spot rates, forward rates most vol

Answer 80

stock availability could lead to excess/shortage of stock - leading to an irregular yield of some maturities - bigger problem @ long end where govs may be priced out of market some argue QE (CB buying gov bonds to inject CF into bank reserves) has muddied curves predictive powers - QE = longer end purchases, reducing stock, pushing up prices, decreasing yield and flattening curve

Answer 81

all 3 explanations prob influence (pref habitat, liq pref theory, pure expectation theory) short end - dominated by future rate expectations med/long - more influences by inflation expectations and liq premium

Answer 82

interest rate risk Inflation risk Credit/Default risk Liquidity/Marketability risk Issue specific risk Fiscal risk Currency risk Macro-economic factors

Answer 83

= potential that a change rates will reduce the value of a bond prob most important risk factor - due to relationship between rates and bond prices can be mitigated by matching macaulay duration with liability or with FRNs or step up bonds to mitigate effect of rate changes or ILBs

Answer 84

risk that inflation will undermine the performance of an investment linked to IR risk as rates will rise to compensate bondholders for decline in purchasing power may be reduced with ILBs

Answer 85

risk of issuer defaulting on obligations to pay coupons and repay principal ratings help to assess this risk - though reputational damage caused during financial crisis due to ratings of MBS mitigated by investing in highly rated bonds

Answer 86

loss incurred when a market participant wants to execute a trade or to liquidate a position immediately while not hitting the best price - i.e. ease with which asset can be sold for best price - worse for smaller issues and off the run stocks (not most recent issue)

Answer 87

exposure to losses/gains in the value of currency when converting CFs can be mitigated by buying bonds in investors home currency

Answer 88

risk arising due to specific bond issue e.g. call rights

Answer 89

risk that witholding tax will increase or risk of capital controls locking money into market with foreign bonds

Answer 90

longer dated more sensitive than shorter dates lower coup/lower yield more sensitive both as CFs futher away

Answer 91

weighted average PV of bond's payments (yrs) i.e. how long it takes for cost of bond to be repayed by CFs essentially - calc of sensitivity of bond to changes in yields low coup, low yield, long time to duration = higher mac d do this in a table w/ headings, period, CF, PV CF, PV xt

Answer 92

cannot use annuity formula as it's the sum of PVxt

Answer 93

y = rate aprox change in price for 1% change in yield if yield goes up price will go down obvi only an approximation due to convexity because mod duration implies linear price yield relationship

Answer 94

only an approximation due to convexity because mod duration implies linear price yield relationship actual relationship isnt linear - increases in yields results in prices dropping at reducing rate mod dur - will overstate fall in price and understate rise

Answer 95

measure of curvature in relationship between bond price and yield - change in mod dur with respect to yields higher convexity = more curvature lower coup = lower convexity mod duration good aprox for small movements in yield - diminishes as yield vol increases

Answer 96

amount to add to price to account for convexity (always pos)

Answer 97

longer maturity = higher convexity lower coupon = higher convexity lower yield = higher convexity if same mod duration - higher coup = greater convexity

Answer 98

half coupon and yield - double periods when pricing calc duration as usual then half calc convexity as usual then /4

Answer 99

finer measure of sensitivity AKA price/dollar value of basis point represents how much price will change if yield changes by a bp more sensitive bonds obvs have higher bpv