Erna Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X)

Question:

Erna Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X) and a putable bond (Bond Y). She wants to examine the interest rate sensitivity of these two bonds to a parallel shift in the benchmark yield curve. Assuming an interest rate volatility of 10%, her valuation software shows how the prices of these bonds change for 30 bps shifts up or down:Time to maturity Coupon Type of bond Current price (% of par) Price (% of par) when shifting the benchmark

The effective duration for Bond X is closest to:

A. 0.67.

B. 2.21.

C. 4.42.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fixed Income Analysis

ISBN: 9781119850540

5th Edition

Authors: Barbara S. Petitt

Question Posted: