What are the limitations of using duration as a measure of a bond’s price sensitivity to interest-rate changes?
Answer to relevant QuestionsThe following excerpt is taken from an article titled “Denver Investment to Make $800 Million Treasury Move,” that appeared in the December 9, 1991, issue of BondWeek, p. 1: “Denver Investment Advisors will swap $800 ...Consider the following portfolio: (a) What is the portfolio’s duration? (b) If interest rates for all maturities change by 50 basis points, what is the approximate percentage change in the value of the portfolio? (c) What ...Can you tell from the following information which of the following three bonds will have the greatest price volatility, assuming that each is trading to offer the same yield to maturity? Bond Coupon Rate (%) Maturity ...Explain why a financial asset can be viewed as a package of zero-coupon instruments. What actions force a Treasury’s bond price to be valued in the market at the present value of the cash flows discounted at the Treasury spot rates?
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