You are given the following information about the current state of the continu- ously compounded zero...
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You are given the following information about the current state of the continu- ously compounded zero yield curve, and four possible scenarios that might occur instantaneously. Yield Yr. 1 Yield Yr. 2 Yield Yr. 3 Yield Yr. 4 Current 6.25% 7.00% 7.50% 8.00% Scenario 1 7.00% 7.75% 8.25% 8.75% Scenario 2 6.25% 7.50% 8.00% 8.50% Scenario 3 5.00% 6.00% 7.50% 7.00% Scenario 4 7.00% 6.50% 6.25% 6.00% Scenario 5 7.25% 7.75% 7.75% 8.00% For each scenario, compute the following: i. The actual price change of this bond. ii. The price change of this bond as estimated by 2 ings. $' iii. The price change of this bond as estimated by both 2 on your ndings. iv. The price change of this bond as estimated by 2 ndings. v. The price change of this bond as estimated by both 2 on your ndings. When computing the price change using 2 $ and 3 $' Comment on your nd- $ and 3 $. Comment Sul. Comment on your $ Sul and 3 Sul. Comment $ use the arithmetic average change in the term structure (equal weights for each maturity) for the uniform change in the term structure. You are given the following information about the current state of the continu- ously compounded zero yield curve, and four possible scenarios that might occur instantaneously. Yield Yr. 1 Yield Yr. 2 Yield Yr. 3 Yield Yr. 4 Current 6.25% 7.00% 7.50% 8.00% Scenario 1 7.00% 7.75% 8.25% 8.75% Scenario 2 6.25% 7.50% 8.00% 8.50% Scenario 3 5.00% 6.00% 7.50% 7.00% Scenario 4 7.00% 6.50% 6.25% 6.00% Scenario 5 7.25% 7.75% 7.75% 8.00% For each scenario, compute the following: i. The actual price change of this bond. ii. The price change of this bond as estimated by 2 ings. $' iii. The price change of this bond as estimated by both 2 on your ndings. iv. The price change of this bond as estimated by 2 ndings. v. The price change of this bond as estimated by both 2 on your ndings. When computing the price change using 2 $ and 3 $' Comment on your nd- $ and 3 $. Comment Sul. Comment on your $ Sul and 3 Sul. Comment $ use the arithmetic average change in the term structure (equal weights for each maturity) for the uniform change in the term structure.
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Related Book For
Corporate Finance Principles and Practice
ISBN: 978-1292103037
7th edition
Authors: Denzil Watson, Antony Head
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