Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Modified duration is used to determine the percentage change in the bond's prices for a 100 basis point (1%) change in the yield. The underlying assumption is that the bond's expected cash flows would not change when yield changes. It means that to calculate the value of V- and V+ in equation (1) the same cash flows used for calculating V0 are used.
The assumption that cash flow would not change when yield changes is not true for all types of bonds. It is true in case of option-free bond but it is not applicable in case of putable and callable bonds. For example, the payments made by the Treasury Department to the holders of its obligations do not change when interest rates change. However, the same is not true for bond with embedded options. The expected cash flows may change significantly with the change in the yield.
Effective duration is a duration calculation for bonds with embedded options. Effective duration takes into account both the discounting at different interest rates and how the expected cash flow may change. Effective duration can be estimated using modified duration if the bond with embedded options behaves like an option-free bond. This behavior occurs when exercise of the embedded option would offer the investor no benefit. As such, the security's cash flows cannot be expected to change given a change in yield. There can be huge difference between the modified duration and effective duration. For example, the modified duration for a callable bond could be 7, whereas the effective duration could be 5. Sometimes it may be the other way round, i.e for certain mortgage obligations the effective duration may be more than the modified duration. Therefore, we can conclude that the effective duration is a more appropriate measure in case of bonds with embedded options.
what is mean by breakeven point
Q. Evaluate Net realisable value of assets? Valuation (i) Method 1 - Net assets according to the statement of financial position Value = $295000 Reservation N
Specialized Stock Indexes The most regularly quoted market indices are those that include the stocks of the largest listed companies on a nation's largest stock exchange. Examp
Discount Rate Determinants The discount rate is the firm weighted average cost of capital. It represents the opportunity cost of investing creditors and shareholders funds in o
Syntax of Accounting Procedure The general accounting practices are: (a) Do not consider any income or gain till the similar is realised in cash; (b) Create or make pr
Q. Illustrate Methods to Manage cash resources? There are several methods which may be of use in managing resources. The particular tool selected will depend on its reliability
Q. What are the Motives of Holding Cash? Motives of Holding Cash: - In every business assets are kept for the reason that they generate profit. But cash is an asset which doesn
Q. What is Current Asset? Current Asset - ASSET which one can reasonably expect to convert into cash, sell or consume in operations within a single operating cycle or within a
BLACKWATER PLC (a) Calculation of NPV EV = (0.3 × 0.50) + (0.5 × 1.40) + (0.2 × 2.0) = 0.15 + 0.70 + 0.40 = 1.25 (i.e.) $ 1.25m To conclude the NPV of the project
Market mechanism: Market mechanism is a term from economics denoting to the use of money exchanged by sellers and buyers with an open and understood system of time and value t
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd