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Suppose bond A has 20 years left to maturity, an 8% coupon rate, pays interest semi-annually, and has a 6% yield to maturity and bond B has 25 years left to maturity, a 5% coupon rate, pays interest semi-annually, and has a 7% yield to maturity.
What is the duration of each bond?
What is the convexity of each bond?
What are the optimal weights for bond A and bond B if the duration of your portfolio is 10 years?
Supposed interest rate increases by 1%, estimate of the percent price change in each bond due to both duration and convexity.
Which bond is preferred for a portfolio inclusion?
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Call protection for the next 10 years, and a call premium of $25. What is the yield to call (YTC) for this bond if the current price is 110 percent of par value?
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The Role of Financial Management in a Firm
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