Question: Consider the following two Treasury securities Which bond will have the
Consider the following two Treasury securities:
Which bond will have the greater dollar price volatility for a 25-basis-point change in interest rates?
Answer to relevant QuestionsWhat are the limitations of using duration as a measure of a bond’s price sensitivity to interest-rate changes? Explain why the duration of an inverse floater is a multiple of the duration of the collateral from which the inverse floater is created. (a) Explain what a 10-year key rate duration of 0.35 means? (b) How is a key rate duration computed? Following are U.S. Treasury benchmarks available on December 31, 2007: US/T 3.125 11/30/2009 3.133 US/T 3.375 11/30/2012 3.507 US/T 4.25 11/15/2017 4.096 US/T 4.75 02/15/2037 4.518 On the same day, the following trades ...Answer the below questions. (a) What are the limitations of using Treasury strips to construct the theoretical spot rate curve? (b) When Treasury strips are used to construct the curve, why are only coupon strips used?
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