A corporation buys a 10-year semi-annual coupon bond with 5% coupon rate. The price, duration, and...
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A corporation buys a 10-year semi-annual coupon bond with 5% coupon rate. The price, duration, and convexity of the bond is $103.58, 8.03, and 73.87, respectively. If the corporation is worried about the losses that its portfolio may suffer from an upward shift in the term structure of interest rates, how can this corporation make a duration and convexity hedging strategy using 2-year zero coupon bond and 5-year zero coupon bond? Assume that the price of the 2-year zero coupon bond is $91.39 and that the price of the 5-year zero coupon bond is $79.85. A corporation buys a 10-year semi-annual coupon bond with 5% coupon rate. The price, duration, and convexity of the bond is $103.58, 8.03, and 73.87, respectively. If the corporation is worried about the losses that its portfolio may suffer from an upward shift in the term structure of interest rates, how can this corporation make a duration and convexity hedging strategy using 2-year zero coupon bond and 5-year zero coupon bond? Assume that the price of the 2-year zero coupon bond is $91.39 and that the price of the 5-year zero coupon bond is $79.85.
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Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham
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