In the calculation of effective duration and effective convexity, why is a prepayment model needed?
Answer to relevant QuestionsThe following excerpt is taken from an article titled “Fidelity Eyes $250 Million Move into Premium PACs and I-Os” that appeared in the January 27, 1992, issue of BondWeek, pp. 1 and 21: “Three Fidelity investment ...In the October 26, 1992, prospectus summary of the Staples 5% convertible subordinated debentures due 1999, the offering stated: “Convertible into Common Stock at a conversion price of $45 per share . . .” If the par ...What is a cash flow arbitrage strategy involving convertible bonds? When using the percentage change in the credit spread as a measure of the credit spread change, what assumption is being made? Assume the following for corporate bond A: spread duration = 5, credit spread = 100 basis points, and weight in the portfolio = 6%. Answer the below questions. (a) What is bond A’s duration times spread? (b) What is bond ...
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