You invest in a 2 year AA rated corporate bond. The bond has a face value...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You invest in a 2 year AA rated corporate bond. The bond has a face value of $100 and a coupon rate of 3% (paid annually). The AA corporate yield curve is flat at 4% (this implies a discount rate of 4% for all cash flows). Assume all shifts in the yield curve are parallel and that the distribution of 1 day changes in the rates are AR_AA - N(0, 0.0004) (Note: this means that they have mean zero and a standard deviation of 2%). Use the duration approximation to get the 10 day, 95% VaR for this bond. You should provide the bond price, duration and distribution of bond price changes as a minimum amount of working. You invest in a 2 year AA rated corporate bond. The bond has a face value of $100 and a coupon rate of 3% (paid annually). The AA corporate yield curve is flat at 4% (this implies a discount rate of 4% for all cash flows). Assume all shifts in the yield curve are parallel and that the distribution of 1 day changes in the rates are AR_AA - N(0, 0.0004) (Note: this means that they have mean zero and a standard deviation of 2%). Use the duration approximation to get the 10 day, 95% VaR for this bond. You should provide the bond price, duration and distribution of bond price changes as a minimum amount of working.
Expert Answer:
Related Book For
Posted Date:
Students also viewed these accounting questions
-
The U. S. yield curve is flat at 5 percent and the euro yield curve is flat at 4 percent. The current exchange rate is $ 1.20 per euro. What will be the swap rate on an agreement to exchange currency...
-
The LIBOR zero curve is flat at 5% (continuously compounded) out to 1.5 years. Swap rates for 2- and 3-year semiannual pay swaps are 5.4% and 5.6%, respectively. Estimate the LIBOR zero rates for...
-
A 10-year German government bond (bund) has a face value of 100 euros and an annual coupon rate of 5%. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond's PV?
-
A company had a broken printer which they deemed was not worth fixing and thus discarded it. The original cost of the printer was $7,500 and the accumulated depreciation at the time of disposal was...
-
1. Plaintiff thought he would be able to remove the ESA barrier by getting the bald eagle delisted. What other barrier did the court find would be in his way? 2. Do you think its a good idea for...
-
The electric field in a particular space is E = (x + 2)i N/C, with r in meters. Consider a cylindrical Gaussian surface of radius 20 cm that is coaxial with the x axis. One end of the cylinder is at...
-
Read the blog post We Will Never See Anything Like It Again: Movements in Real GDP during the Covid19 Recession at...
-
Jims Camera shop sells two high-end cameras, the Sky Eagle and Horizon. The demand for these two cameras are as follows: DS = demand for the Sky Eagle, PS is the selling price of the Sky Eagle, DH is...
-
61. The solubility product of CuS, AgS and HgS are 10 37, 104 and 1054 respectively. The solubility of these sulphides will be in the order (1) HgS> AgS > Cus (2) AgS>HgS > CuS (3) CuS AgS > HgS (4)...
-
Background: A new ownership group has recently purchased ABC Liquors. You have been hired by the new management team to analyze their sales data for the past year and provide them with insights about...
-
java program GUI(Formatting is not important!) based program that will Add, Modify and delete information from customer table.(Make sure that table in the database and attributes of the customer...
-
In 2024, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2026. Information related to the contract is...
-
Iris Company has provided the following information regarding two of its items of inventory at year-end: .There are 160 units of Item A, having a cost of $18 per unit, a selling price of $22 and a...
-
Since the calculation of the employee and employer's required contribution to a defined benefit plan is not done by calculating the contribution required for each employee, the government has devised...
-
Clopack Company manufactures one product that goes through one processing department called Mixing. All raw materials are introduced at the start of work in the Mixing Department. The company uses...
-
Use the above information from the tables to work out the following missing entries, and then calculate the company's return onequity. Note: Inventory turnover, average collection period, and return...
-
Professor Bartlett study suggests that institutional investors have placed little if any value on preserving their ability to assert private Section 10b claims. Do institutional investors value the...
-
(a) Bright Sdn Bhd (BSB) is a tax resident manufacturing company in Johor, which involves in ceramic tiles. Currently, BSBs annual sales turnover has been forecasted to be around RM 300,000 for the...
-
The following table gives the prices of bonds *Half the stated coupon is paid every six months a) Calculate zero rates for maturities of 6 months, 12 months, 18 months, and 24 months. b) What are the...
-
A one-month European put option on a non-dividend-paying stock is currently selling for $2.50. The stock price is $47, the strike price is $50, and the risk-free interest rate is 6% per annum. What...
-
What is the effect of an unexpected cash dividend on (a) a call option price and (b) a put option price?
-
The change in the annual spending rate, in conjunction with the boards expectations regarding future enrollment and the need for endowment support, could justify that KUEs target weight for: A....
-
Which of the characteristics put forth by Chaterji to describe the factor-based approach is/are correct? A. Only Characteristic 1 B. Only Characteristic 2 C. Both Characteristic 1 and Characteristic...
-
Which of Caparas statements regarding tactical asset allocation is correct? A. Statement 1 B. Statement 2 C. Statement 3 Rebecca Mayer is an asset management consultant for institutions and...
Study smarter with the SolutionInn App