In the morning, the zero coupon curve was flat with all maturities yielding 5% p.a. continuous but
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In the morning, the zero coupon curve was flat with all maturities yielding 5% p.a. continuous but by the evening of the same day, the same continuous yield had risen to 6% (continuous) for all maturities (a parallel shift).
A. What is the price of a two year annuity with cashflows of +1051.27, +1105.17 in years one and two only?
B. What was the duration of this annuity (in years)?
C. Given the 1% parallel shift in continuous rates, what arithmetic % return would you predict for the bond that day?
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