1.) Let be a generic function as discussed in class. dollar duration is: 2.)cons
ID: 2740141 • Letter: 1
Question
1.) Let
be a generic function as discussed in class. dollar duration is:
2.)consider a bond with maturity 4 year, 100 face value, coupon 5%, and yield 5%. compute a dollar duration numerically using dy=0.001%.
3.) consider a bond P with 4 year maturity, 6%coupon annually paid, yield to maturity 7%
pricing function is…
4.)duration captures one important aspects of internet rate risk. Namely…
5.) assume that there is a bond that pays $50 at the end of year 1 and $50 at the end of year 2. it sells at $100. the macauley duration of the bond is...
a. 0
b.1
c.1.5
d.2
6.)assume that you manage a bond portfolio. the dollar duration of the portfolio is -6710000. an instrument is traded with dollar duration equal to -1342. to make the portfolio duration neutral you need to…..
Explanation / Answer
Ans;
2.
Face value of bond = 100
Coupon rate = 5%
Yield to maturity = 5%
Maturity duration = 4years
Coupon rate = 100 * 5% = $5
= Coupon rate * PVIFA + Coupon rate *PVFA
= $5 * (5%, 4years) + (5%, 4years)
= 5* $3.5459 + $5* 0.7835
= $17.72 + 3.91
= $21.6375
5. a. 0
6.buy 5000 units of the hedging instruments
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