What is the duration of a portfolio invested

Reference no: EM132724800

Question 1. You are given the following spot rates on T0:

Maturity Rate
1y 2.5%
2y 3.2%
3y 3.8%

? Compute the forward rate between year 1 and year 2 (the 1y1y forward rate)
? Compute the forward rate between year 2 and year 3 (the 2y1y forward rate)
? Compute the forward rate between year 1 and year 3 (the 1y2y forward rate)

Question 2. Consider the following securities

Bond A has a duration of 7 and a price of $100
Bond B has a duration of 5 and a price of $110

? Approximate the percent change in the price of Bond A if rates increase by 50bps
? Approximate the dollar change in the value of Bond A if rates increase by 50bps
? Approximate the dollar change in the value of Bond B if rates increase by 50bps

Question 3. What is the duration of a portfolio invested 50% in 10-year zero coupon bonds and 50% 2-year zero coupon bonds?

Question 4. True or False? Explain your answers:
? The yield curve is usually upward sloping because bonds with longer maturities are riskier and investors expect higher returns
? A downward sloping yield curve indicates that investors do not expect interest rates to change in the future
? Bonds with higher coupons have lower interest rate risk
? The duration of a coupon bond with X maturity is always lower than a zero-coupon bond with the same maturity date

Reference no: EM132724800

Questions Cloud

Determine the cost of goods available for sale : Vaughn had in beginning inventory 2,000 of Unique's CDs with a unit cost of $5. Determine the cost of goods available for sale

Differences in servant leadership in different cultures : Please explain the differences in servant leadership in different cultures.

How much is the after-tax cost of debt : How much is the after-tax cost of debt? If company's total equity is $2,500,000, how much is the target total liabilities? How much is after-tax cost of equity?

List out five possible activities : Employee empowerment could be viewed in both positive and negative perspective.

What is the duration of a portfolio invested : What is the duration of a portfolio invested 50% in 10-year zero coupon bonds and 50% 2-year zero coupon bonds - The duration of a coupon bond with X maturity

How is this presented in the bank reconciliation : The following information is associated with Z Company as at 31 December xxxx - how is this presented in the bank reconciliation

Find what amounts are dividends and dividends payable : July 10 Paid the $1.50 cash dividend. At what amounts are dividends and dividends payable reported in the financial statements prepared at December 31?

Organizational chart of the management of organization : Choose and put together an organizational chart of the management of the organization.

Nextgen and unmanned air vehicles : Describe the advantages of NextGen Technology and why it is important that it be implemented in our National Airspace.

User Account

All Pages