Describing impact of change in interest rates

Assignment Help Finance Basics

Reference no: EM13826496

Problem:

A bank has a portfolio of residential fixed interest mortgage bonds (bonds secured on residential mortgages) with a market valuation of €3mn, and with a modified duration of D = 7 years.

State the duration formula describing the impact of a change of interest rates (Δi) on the value of this bond portfolio (P). Using this formula to estimate the impact of a rise of interest rates of 100 basis points on the value of this holding, in % and in €?
Explaining your answers, provide two reasons why the actual impact might be different than this simple calculation.
Briefly discuss the pros and cons of using a Value at Risk calculation, instead of duration, to describe the market risk of this portfolio of residential fixed interest mortgage bonds.

Additional Information:

This question is basically belongs to the Finance as well as it explains about duration formula describing impact of change in interest rates on the value of a bond portfolio.

Reference no: EM13826496

Questions Cloud

Risk from holding swap with short term interest rates : A bank purchases an interest rate swap, exchanging a fixed interest rate of 8% for a floating interest rate of LIBOR + 120 basis points, on a notional principal of £200mn. There is no arrangement fee.

Calculate the point price elasticity of demand : The example case study is from Managerial Economics. The problem is explain about a fitness development company. The demand function needs to be interpreted along with price elasticity of demand and income elasticity of demand.

Pocket phone projector review : Pocket Phone Projector Review

Write essay on creating differential advantage : The problem belongs to Management and it is about writing an essay on Creating Differential Advantage and Managing Uncertainty in the Development and Design process

Describing impact of change in interest rates : A bank has a portfolio of residential fixed interest mortgage bonds (bonds secured on residential mortgages) with a market valuation of €3mn, and with a modified duration of D = 7 years.

Write a literature review about marketing research : Write A Literature Review About Marketing Research

Discussion about performance measures : The asset management industry uses a variety of "performance measures" to asses the relative performance of managed portfolios or funds, mostly (but not always) relative to an appropriate benchmark.

Explain what is meant by a cross-price elasticity of demand : The question from Economics is interpreting an article. The article is about food security and the economic plight of some of the developing nations in the world.

Preparing a job order for a manufacturing unit : Under the conventional system previously used, calculate the manufacturing cost per unit for job orders 81, 82, 83 and 84. Under the new ABC system, calculate the manufacturing cost per unit for the four jobs.

User Account

All Pages