1.The rate of return on a bond is 3.4%, the modified duration of the bond is 4.44, and the bond term is 5 years.What must be the current interest rate?

2.The term on a bond is 10 years, the modified duration of the bond is 8.52 and the current interest rate is 3.0%. Calculate the predicted % change in value of the bond based on modified duration if interest rates were to increase by 200 basis points (from 3.0% to 5.0%).

3.You invested $500 in a 3% bond with a modified duration of 8.53 years and convexity equal to 87.07. Calculate the predicted change in value of the bond as a percentage change and the predicted value of the bond based on convexity if interest rates were to decrease by 100 basis points (from current 3.0% rate to 2.0%).

4.Assume interest rates have the following term structure: Six-months = 1.0%, Two-Years = 2.0%, and Ten-Years = 4.0%.

a)What is the shape of this term structure?

b)What is the level of this term structure?

c)What is the steepness of this term structure?

d)What is the curvature of this term structure?

Answer rating: 100% (QA)

Bond Valuation and Interest Rate Sensitivity 1 Calculating Current Interest Rate We can use the following formula to calculate the current interest ra... View the full answer