Consider a four-year bond with a 10 percent coupon paid annually and an 8 percent rate of return (rb). The duration of this bond is ( ) years.
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Consider a four-year bond with a 10 percent coupon paid annually and an 8 percent rate...
Consider a 2-year coupon bond that pays coupon annually with a coupon rate of 3%, face value $1000, a yield to maturity of 4%. (a) What is the approximated bond price estimated by both duration and convexity if the yield is increased by 0.5%? (b) Suppose you purchased 1 unit of the above coupon bond mentioned above and is worried if the interest rate will increase. You are considering taking short position on a zero coupon bond. The zero coupon...
Consider a bond with two year remaining to maturity, a $1,000 face value, an 8 percent coupon rate (paid annually), and an interest rate (either required rate of return or yield to maturity) of 10 percent. How much is the modified Duration of the bond in years? 1.55 1.65 1.75 1.85 1.95 2 2.01 2.11 3 4
Consider a bond that has a current value of 107.62, a coupon of 8% (paid semi-annually), and 2 years to maturity. If the spot rate curve is the following: Maturity Spot rate 0.5 0.6% 1.0 1.4% 1.5 2.7% 2.0 4% the arbitrage-free value of the bond is _____________.
Consider a 2-year coupon bond that pays coupon annually with a coupon rate of 3%, face value $1000, a yield to maturity of 4%. (a) What is the approximated bond price estimated by duration if the yield is increased by 0.5%? (b) What is the convexity of this coupon bond?
At t=0, you purchase a five-year, 8 percent coupon bond (paid annually) that is priced at par. The face value of the bond is $1,000. You are also given that your investment horizon is also five years. Suppose that the market interest rate increases to 9 percent (increase by 100 basis points) during the first year of your purchase (within year 1), and it remains at that level (9 percent) for the next four years. You hold the bond till...
At t=0, you purchase a five-year, 8 percent coupon bond (paid annually) that is priced at par. The face value of the bond is $1,000. You are also given that your investment horizon is also five years. Suppose that the market interest rate increases to 9 percent (increase by 100 basis points) during the first year of your purchase (within year 1), and it remains at that level (9 percent) for the next four years. You decided to sell the...
Consider a bond that has a current value of 107.62, a coupon of 8% (paid semi-annually), and 2 years to maturity. If the spot rate curve is the following: Maturity Spot rate 0.5 0.6% 1.0 1.4% 1.5 2.7% 2.0 4% the arbitrage-free value of the bond is _____________.
Compute the duration of a bond with a face value of $1,000, a coupon rate of 7% (coupon is paid annually) and a maturity of 10 years as the interest rate (or yield to maturity) on the bond changes from 2% to 12% (consider increments of 1% - so you need to compute the duration for various yields to maturity 2%, 3%, …, 12%) . What happens to duration as the interest rate increases?
(4 points) Consider a 2-year mortgage loan that is paid back semi-annually. The semi-annually compounded mortgage rate is 5%. The principal is $1000. a) (1 point) Calculate the semi-annual coupon. b) (3 points) How much of the coupon is interest payment and how much is principal repayment in 0.5 year, in 1 year, in 1.5 years, and in 2 years? Also calculate the (post- coupon) notional value of the outstanding principle for these four dates. (4 points) Consider a 2-year...
Consider a three-year bond with 6% annual coupon (paid semi-annually). Suppose the yield on the bond is 8% per year with continuous compounding. What is the duration of the bond (in years)? (required precision: 0.01 +/- 0.01)