Suppose Aalbond experiences a rash of mortgags prepayments, reducing the size of the mortage portfolio from $150$ million to $100$ million and increases cash resevres to $100$ million. What is the duration of Aalbonds equity now? if the interest rate are currently $4\%$ but fall to $3\%$ estimate approximate change in the value of Aalbond's equity

Suppose that after the prepayments in part $($b$)$ but before a change in interest rates. aalbond considers managing its risk by selling mortgages and$/$or buying $10-$year Treasury bonds$($zero$-$coupon bonds$)$ How many should the firm buy or sell to eliminate its current interest rate risk?  

Answer rating: 100% (QA)

To calculate the duration of Aalbonds equity after the prepayments we need to first understand the concept of duration Duration is a measure of a bond... View the full answer