We expect the yields of maturity to increase by 1% from their present level. We have a 25 year 8% paying bond with a required rate of 7%. We want to switch to a 4 year 8% bond with a market rate of 6%. What shall we gain if we act on our expectation, and it transpires.  If rates instead decrease, what will be the result?

 Our shift requires an analysis of the determinants of duration.

Answer rating: 100% (QA)

To calculate the gain or loss from the expected increase in yield we need to determine the current b... View the full answer