What will happen to the bond call-adjusted duration

Reference no: EM13266860

The Francesca Finance Corporation has issued a bond with the following characteristics:
Maturity-25 years
Coupon-9%
Yield to maturity-9%
Callable-after 3 years @ 109
Duration to maturity-8.2 years
Duration to first call-2.1 years
a. Discuss the concept of call-adjusted duration, and indicate the approximate value (range) for it at the present time.
b. Assuming interest rates increase substantially (i.e., to 13 percent), discuss what will happen to the call-adjusted duration and the reason for the change.
c. Assuming interest rates decline substantially (i.e., they decline to 4 percent), discuss what will happen to the bond's call-adjusted duration and the reason for the change.
d. Discuss the concept of negative convexity as it relates to this bond.

Reference no: EM13266860

Questions Cloud

What is the maximum monthly charge cookie cutter should pay : What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month?

At what time is the peak emf first reached : A 70 turn, 10.0 cm diameter coil rotates at an angular velocity of 8.00 rad/s in a 1.15 T field, At what time is the peak emf first reached

Why the noise level is much lower than the signal : A signal is sampled every 1ms for 20ms, with the following actual values of the analogue voltage at successive sampling times. Plot the values of the voltage recorder by a 5 volt, 4 bit ADC assuming that the noise level is much lower

What is its final velocity : A student pushes a loaded sled whose mass m is 240kg for a distance d of 2.3m over the frictionless surface of a forzen lake. if the sled starts from rest, what is its final velocity

What will happen to the bond call-adjusted duration : Assuming interest rates decline substantially (i.e., they decline to 4 percent), discuss what will happen to the bond's call-adjusted duration and the reason for the change.

At what frequency would a signal at 22 khz appear : If a signal is digitized at a sampling rate of 20kHz centered at 10 kHz, at what frequency would a signal at 22 kHz appear

Reform-counter-reform and mannerism : Compare Erasmus and Luther in their attempts to bring about religious reform. Consider the role of the printing press and the actions of German princes in helping Luther to succeed. Next, identify one (1) example of the Protestant Reformationa's impa..

Which bond should the investor select : One is a corporate bond carrying an 8 percent coupon and selling at par. The other is a municipal bond with a 5½ percent coupon, and it, too, sells at par. Assuming all other relevant factors are equal, which bond should the investor select?

What is the spring stiffness constant : A fisherman's scale stretches 4.0cm when a 2.3kg fish hangs from it. What is the spring stiffness constant

User Account

All Pages