Consider a flat term structure of interest rates (2% expressed in continuous compounded for every term)...

 

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Consider a flat term structure of interest rates (2% expressed in continuous compounded for every term) and the following bonds: 1st 2nd 3rd 4th 100; 100; 100; 400; Maturity 0; 1; 102; 2; 12; 0; 2; 0; 102; 12; 0; 3; 0; 0; 12; 160; 4; 0; 0; 60; 160; 5; 0; 0; 60; 120; a) Calculate the duration and convexity of the 3rd and 4th bonds. Which is the best option according to both criteria? Explain your answer. b) How would you price the 3rd and 4th bonds if the yield curve fell 50 basis points? Which will be more affected? Why? c) Considering a liability with the following maturities, estimate a portfolio of assets with 1st and 2nd bonds to compute an immunized strategy: 1 year 4,121.60 2 years 2,040 Consider a flat term structure of interest rates (2% expressed in continuous compounded for every term) and the following bonds: 1st 2nd 3rd 4th 100; 100; 100; 400; Maturity 0; 1; 102; 2; 12; 0; 2; 0; 102; 12; 0; 3; 0; 0; 12; 160; 4; 0; 0; 60; 160; 5; 0; 0; 60; 120; a) Calculate the duration and convexity of the 3rd and 4th bonds. Which is the best option according to both criteria? Explain your answer. b) How would you price the 3rd and 4th bonds if the yield curve fell 50 basis points? Which will be more affected? Why? c) Considering a liability with the following maturities, estimate a portfolio of assets with 1st and 2nd bonds to compute an immunized strategy: 1 year 4,121.60 2 years 2,040