Estimate the 2-year, 5-year, and 10-year key rate durations of a 20-year bond carrying a coupon of C1 percent on face value $100 paid semi-annually. The given term structure starts with C2 percent spot rate of interest at time zero and rises at a rate of 0.002 (.2%) per half year thereafter. Take a 20 basis point (.002) move in each key interest rate to calculate the key rate durations by the method done in class and given in textbook. Report answers for the following:

1. 2-year key rate duration.

2. 5-year key rate duration.

3. 10-year key rate duration.

Answer rating: 100% (QA)

1 Current fair Price 20258 Year Coupon Rate Spot Rate Discount factor for semi annual Cash Flow Pres... View the full answer