What is the overall effect on the price of the bond

Assignment Help Financial Management

Reference no: EM131901883

Convexity

a. It is said that the price-yield relationship for bonds is convex. What does this mean? What role does convexity play in determining the rate of change in a bond price in response to changes in the required yield?

b. Consider a 15-year 9% bond selling to yield 6%. The modified duration (MD) for this bond is 6.25 years. The convexity measure for the bond is 55. Suppose the required yield increases by 100bp. Determine the approximate percentage change in the price of the bond (dP/P) using the duration formula.

c. Determine the percentage change in the price of the bond due to convexity. What is the overall effect on the price of the bond?

Reference no: EM131901883

Questions Cloud

What was lehightons total operating income : What was Lehighton's total operating income across both years under absorption costing and under variable costing?

Export accounts receivable insurance is provided by the : What can multinational firms do to transfer funds out of countries having exchange or remittance restrictions commonly known as "Blocked Funds".

How many of each type of mower to produce : A manufacturer of lawn and garden equipment makes two basic types of lawn mowers: a push-type and a self-propelled model. The push type requires 9 minutes.

Discuss the challenges of being an entrepreneur : Write a reflection or lessons learned from the textbook Entrepreneurship: Theory, process, and Practice (9th ed.) by Kuratko, D.F. (2014) and how the textbook.

What is the overall effect on the price of the bond : c. Determine the percentage change in the price of the bond due to convexity. What is the overall effect on the price of the bond?

Confidence in the banking system : Suppose there is a cyberattack on big banks in the United States leading to decline in confidence in the banking system.

What is the current inflation rate and nominal interest rate : a. What is the current inflation rate and nominal interest rate? b. If the money supply growth rate increases to 12 percent, how will your answers in part (a)

Provides a brief commentary of key relevant literature : Demonstrate your knowledge of management research methods and to prepare you for writing your research proposal to meet the requirements of the dissertation

Identify the impact of your contributions to self : Write a paper of 1,250-1,500 words that presents your complete personal model of leadership. The 2 parts involved in creating your personal model of leadership.

User Account

All Pages