Consider a six-year, $1,000 par value, zero-coupon bond yielding 8 percent. (15 points) 1- What is the
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Consider a six-year, $1,000 par value, zero-coupon bond yielding 8 percent. (15 points)
1- What is the duration of this bond? (1 point)
2- If interest rates increase to 9 percent, what is the amount of error (Pduration - Pmarket) in the price estimate using the duration relationship versus the true bond price determined in the market? (3 points)
3- What is the convexity factor (CX) for this bond? (6 points)4- What is the change in price caused by convexity in the duration-convexity model for an interest rate increase to 9 percent? (5 points)
Expert Answer:
ZeroCoupon Bond Analysis 1 Duration For a zerocoupon bond the duration equals the time to maturity I... View the full answer
Related Book For 
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
Posted Date:
