Assume all rates are annualized with semi-annual compounding. Be explicit about how you derive your results and
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Question:
a. What is the price of:
i. $1 par of a 0.5-year zero?
ii. $1 par of a 1-year zero?
iii. $100 par of a 1-year 10%-coupon bond, in the absence of arbitrage?
b. What is the dollar duration of:
i. $1 par of a 0.5-year zero?
ii. $1 par of a 1-year zero?
iii. 100 par of a 1-year 10%-coupon bond?
c. What is the duration of:
i. $1 par of a 0.5-year zero
ii. $1 par of a 1-year zero?
iii. $100 par of a 1-year 10%-coupon bond?
d. Use dollar duration to estimate the change in value of $1,000 par of the 1-year 10%-coupon bond if all zero rates rise 100 basis points.
Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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