Assume a 3-year Euro-note, with a $100,000 face value, a coupon rate of 10% and a...
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Assume a 3-year Euro-note, with a $100,000 face value, a coupon rate of 10% and a convexity of 4.53. Today's YTM is 11.5%. Coupon frequency and compounding frequency are assumed to be annual. (a.) What is the duration of this bond? (b.) What is the exact price change in dollars if interest rates increase by 50 basis points? (c.) Use the duration model to calculate the approximate price change in dollars if interest rates increase by 10 basis points. (d.) What does convexity measure? Incorporate convexity to calculate the approximate price change in dollars if interest rates increase by 50 basis points. Assume a 3-year Euro-note, with a $100,000 face value, a coupon rate of 10% and a convexity of 4.53. Today's YTM is 11.5%. Coupon frequency and compounding frequency are assumed to be annual. (a.) What is the duration of this bond? (b.) What is the exact price change in dollars if interest rates increase by 50 basis points? (c.) Use the duration model to calculate the approximate price change in dollars if interest rates increase by 10 basis points. (d.) What does convexity measure? Incorporate convexity to calculate the approximate price change in dollars if interest rates increase by 50 basis points.
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To calculate the answers well use the following formulas Duration PV of Cash Flows x Time Bond Price Price Change Duration x YTM x Bond Price Convexit... View the full answer
Related Book For
Basic Statistics for the Behavioral Sciences
ISBN: 978-0840031433
6th edition
Authors: Gary W. Heiman
Posted Date:
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