Consider the following bonds: a. b. C. d. Face Coupon rate YTM Time to maturity Bond...
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Consider the following bonds: a. b. C. d. Face Coupon rate YTM Time to maturity Bond A $1,000 8% 8% 3years Bond B $1,000 10% 9% 4 years Bond C $1,000 0% 12% 10 years Calculate or indicate the duration for each bond, if necessary (10 points). Based on duration, which bond has the highest level of interest rate risk. YOU MUST CALCULATE ONE BOND PRICE USING THE BOND PRICING FORMULA! Calculate the duration of a portfolio containing these 3 bonds in equal weights. Assume interest rates increase by one percentage point. Using the portfolio's duration, approximately how much will the portfolio change in value? What is a bond fund manager's challenge at this time? What can he or she do to minimize the interest rate risk of their fund? Consider the following bonds: a. b. C. d. Face Coupon rate YTM Time to maturity Bond A $1,000 8% 8% 3years Bond B $1,000 10% 9% 4 years Bond C $1,000 0% 12% 10 years Calculate or indicate the duration for each bond, if necessary (10 points). Based on duration, which bond has the highest level of interest rate risk. YOU MUST CALCULATE ONE BOND PRICE USING THE BOND PRICING FORMULA! Calculate the duration of a portfolio containing these 3 bonds in equal weights. Assume interest rates increase by one percentage point. Using the portfolio's duration, approximately how much will the portfolio change in value? What is a bond fund manager's challenge at this time? What can he or she do to minimize the interest rate risk of their fund?
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a To calculate the duration of each bond we can use the following formula Duration 1 Time to maturity 2 Coupon payment Yield to maturity 1 Yield to maturity For Bond A Coupon payment 1000 8 80 Yield t... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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