A five-year, zero-coupon bond offers interest rate of 8% per annum. 1. How does a 1-basis-point...
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A five-year, zero-coupon bond offers interest rate of 8% per annum. 1. How does a 1-basis-point increase in the pre- vailing interest rate change the bond in relative terms? velue of this (5th 2. What is the ratio of the relative bond value change over the interest change? (This is the derivative of the value with respect to interest Ivo these th 20% 3. How does the derivative of wealth with re- spect to the interest rate vary with the length of the bond? wel A five-year, zero-coupon bond offers interest rate of 8% per annum. 1. How does a 1-basis-point increase in the pre- vailing interest rate change the bond in relative terms? velue of this (5th 2. What is the ratio of the relative bond value change over the interest change? (This is the derivative of the value with respect to interest Ivo these th 20% 3. How does the derivative of wealth with re- spect to the interest rate vary with the length of the bond? wel
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To analyze the impact of a 1basispoint 001 increase in the prevailing interest rate on a fiveyear zerocoupon bond you can use the concept of bond dura... View the full answer
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