Regardless of the direction of the interest rate change

Assignment Help Financial Management
Reference no: EM131020911

When interest rates go up, duration based calculation shows that the value of the bond will go down and vice-versa. Why is the convexity adjustment always a positive amount regardless of the direction of the interest rate change?

Reference no: EM131020911

Questions Cloud

How could companies have sold same book for a lower price : The copies of the Statistical Abstract that these companies sold were usually identical to those sold by the government, except for having different covers. How could these companies have sold the same book for a lower price than the government di..
Zero coupon bond with a face value-annual coupon payments : You are purchasing a 20 year, zero coupon bond with a face value of $1000. The yield to maturity is 7.2% based on annual coupon payments. What is the current market price?
Discuss the problem of choosing : A forester wants to estimate the total number of trees on a tree farm that have diameters exceeding 12 inches. A map of the farm is available. Discuss the problem of choosing what to sample and how to select the sample.
Why does that not lead to arbitrage opportunities : When a bond goes on special, the repo rate for borrowing against that bond goes below the General Collateral Rate (GCR) which applies to all other Treasury bonds. Why does that not lead to arbitrage opportunities?
Regardless of the direction of the interest rate change : When interest rates go up, duration based calculation shows that the value of the bond will go down and vice-versa. Why is the convexity adjustment always a positive amount regardless of the direction of the interest rate change?
Analysis of cost of equity-debt and debt financing accurate : Christopher William, president of William Industries which produces widgets, has hired you to determine its cost of debt and the cost of equity capital. The stock currently sells for $25 per share and the dividend will be $5. Is Christopher’s analysi..
Are costs of utilities always fixed are they always variable : Many firms consider their wage costs to be variable costs. Why, then, do publishers usually consider their wage and salary costs to be fixed costs? Are the costs of utilities always fixed, are they always variable, or can they be both? Briefly exp..
Possible sources for determining the population growth : What are some possible sources for determining the population growth and health risk factors for the areas in which many of the nurses find employment?
How project management contribute to the overall growth : Critically appraise and evaluate the contribution primary and secondary data sources can make to research studies, particularly with respect to sampling, statistical analysis and data presentation techniques.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the fundamental function of the insurance company

What is the fundamental function of the insurance company--- in other words, what is it the insurance company does that makes the insurance mechanism work? A. It pools those insured’s having similar risks, and predicts the losses that those in the po..

  Shares of preferred stock outstanding

Sports Corp has 10.0 million shares of common stock outstanding, 5.0 million shares of preferred stock outstanding, and 1.0 million bonds. If the common shares are selling for $25.0 per share, the preferred shares are selling for $12.5 per share, and..

  Use value to save

If Maria’s option value to save the Bald Eagle is $43, her willingness to pay is $359, and the non-use value is $88, what would be Maria’s use value to save the Bald Eagle?

  To minimize collection float

To minimize collection float, a firm should do which of the following?

  Immediate receipt of principal plus premium produces

A bond with a put option: (1) Is attractive because the immediate receipt of principal plus premium produces a high return. (2) Is more likely to be puttable when the yields to maturity are higher than coupon rates. (3)Will usually have a higher yiel..

  Liability insurance states-an intentional tort occurs

Motorcycles, ATVs, and other motorized vehicles should be covered by what policy? homeowners, automobile, recreational vehicle, single-user. Liability insurance states that: An intentional tort occurs when.

  Explain three financial initiatives this company uses

Explain 3 financial initiatives this company uses. Evaluate your findings to determine the most likely outcome. Include calculations that support your analysis of various financial outcomes and discuss the financial effect on the organization.

  What is the required yearly savings

How much will the short fall amount to at the beginning of the retirement period and what lump sum will she need at the beginning of the retirement period?

  Describe the ratio and what does the ratio measure

Choose a financial ratio that applies to the Income Statement (eg Return on Sales, EBITDA, etc.). Describe the ratio. What does the ratio measure? Is a large number good or bad? How is it trending

  Developing a balanced scorecard in unit

Developing a Balanced Scorecard In unit, you are exploring the need for organisations to measure and manage performance against objectives, as well as the potential effectiveness of tools such as Balanced Scorecards and Strategy Maps as aids in ca..

  What is the bonds yield to maturity if the bond is selling

A 15-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 12%. What is the bond’s yield to maturity if the bond is selling for $1,070?

  Debt–equity ratio-Calculate the APV of the project

MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt–equity ratio of 50 percent and is in the 40 percent tax bracket. The required return on the firm’s levered equity is 14 percent.  The company would also make y..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd