What are the limitations of the duration measure

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1. What does duration tell you about the sensitivity of a bond portfolio to interest rates. What are the limitations of the duration measure?

2. What rate of interest with continuous compounding is equivalent to 15% per annum with monthly compounding?

3. A deposit account pays 12% per annum with continuous compounding, but interest is actually paid quarterly. How much interest will be paid each quarter on a $10,000 deposit?

4. Suppose that 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are, respectively, 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum, with continuous compounding. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually.

Reference no: EM131235671

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