Question: Suppose you are holding $3,000,000 market value in a zero coupon bond with 30 years to maturity. The annual yield on the bond is 12.45%.

Suppose you are holding $3,000,000 market value in a zero coupon bond with 30 years to maturity. The annual yield on the bond is 12.45%. Suppose we define a bad yield as a yield for which there is only a 95% chance that any yield fluctuation will exceed the bad yield. Suppose that over the last year the average daily yield fluctuation for the bond was 118 basis points. The standard deviation for the average daily yield fluctuation for the zero coupon 30 year bond was 90 basis points. Determine the yield change that corresponds to a 95% probability that no yield fluctuations will exceed this value.

0.01962

0.0199

0.02665

0.02847

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

As part of planning the audit of JA Tire Manufacturing for the year ended December 31, 2023, you are assisting with the performance of risk assessment procedures. The manager has asked you to help...

On January 1, a fund is worth $1,000. On May 1, the fund value has increased to $1,190 and $300 of new principal is deposited on November 1, the fund value has declined to $1,330 and $360 is...

A professional hockey player is offered a 5-year contract in which the player receives a $6 million signing bonus today and a quarterly salary starting at $1.2 million paid at the end of the first...

Please provide the correct answer and explanation as well. Thank you 5. The Dividend Discount Model (DDM) a. is a valuation model only for companies that have paid dividends b. is a dividend...

Section A. If the one year spot rate is 4% and the forward rates for years 2, 3, 4, 5 are 5%, 7%, 8%, and 6%, respectively, then today's interest rate on a five-year bond should be : 4% 5% 6% 7% 8%...

Suppose you are holding $15,000,000 market value in a zero coupon bond with 8 years to maturity. The annual yield on the bond is 9.55%. Suppose you want to calculate the expected shortfall from an...

1. Valuing Bonds What is the price of a 25-year, zero coupon bond paying $1,000 at maturity, assuming semiannual compounding, if the YTM is: a. 6 percent? b. 8 percent? c. 10 percent? 2. Valuing...

Video Excel Online Structured Activity: Interest Rate Sensitivity A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest...

BOND COMPARISONS: Using the bond information below, fill in the cells of the Bond worksheet. You will ultimately need to calculate some missing value for each of the listed securities. Issuer Par...

Suppose the interest rate is r = 3% per year forever. (a) What should be, at time t = 0, the price of a security that pays 100 each year t {1, 2, 3, 4, 5}? (b) What should be, at time t = 0, the...

Qa. If the one year spot rate is 4% and the forward rates for years 2, 3, 4, 5 are 5%, 7%, 8%, and 6%, respectively, then today's interest rate on a five-year bond should be : 4% 5% 6% 7% 8% One...

5. For each pair of planes, determine whether they are coincident, parallel and distinct, or intersect in a line. If the planes intersect in the line, determine a vector equation for the line of...

1. Describe the hallmarks of scientific research. 2. What are the steps in hypothetico-deductive research? Explain them, using your own example. 3. One hears the word research being mentioned by...

Solve for the unknown discount rate in each of the following: ( Enter your answers as a percentage rounded to 2 decimal places ( i . e . 0 . 1 2 3 4 should be entered as 1 2 . 3 4 ) . )

Questions Q1. Write a Python program to retrieve the first and last colors from the following list: color_list = ["red", "green", "white", "blue", "black") Q2. Given the following dictionary,...

=+6. What are the potential consequences of not pursuing a path to healing?

=+Are there ways that your pain has started affecting those around you?

=+1. What feelings or emotions are coming up for you right now?