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Compute the modified duration and convexity of asset

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Reference no: EM132563865

Fixed Income

(a) Please calculate the annualized yields to complete the above table.

(b) Does an arbitrage opportunity exist? If so, please describe the strategy by stating which asset(s) you would buy, and which asset(s) you would sell in order to earn a riskless profit. Please make sure you indicate the relative amount of the assets in the arbitrage portfolio.

(c) Compute the Modified duration and convexity of Asset 4.

(d) Compute the dollar loss on Asset 4 if interest rates rise by 1% using duration and convexity. Note: If you are not able to solve (c), use Modified duration = 4 and convexity = 20.

Reference no: EM132563865

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