Consider the following portfolio of securities: Security Number of Units 4-yr fixed rate bond with a
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Question:
Consider the following portfolio of securities:
Security | Number of Units |
4-yr fixed rate bond with a 4% annual coupon | 1,000 |
2-yr floating rate bond (no spread) with an annual coupon. Assume we are sitting on a reset date | -500
|
4-yr zero coupon bond | 1000 |
Number of units refers to the number of $100 face value bonds in the portfolio. The -500 means that you are short 500 units of the floating rate bond. Assume the the term structure is flat at 5% per year compounded continuously. Find the convexity of the portfolio
Related Book For
Financial Accounting For Management
ISBN: 9789385965661
4th Edition
Authors: Neelakantan Ramachandran, Ram Kumar Kakani
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