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.
Which ratios would a banker be most interested in when considering whether to approve an application for a short-term business loan? Explain. Bankers and other lenders use liq
Q. Limitations of Traditional Approach in financial management? Limitations of Traditional Approach: - The traditional approach continued till mid 1950's. It has at the prese
Your quantitative analysis will describe the financial strength of you company using the metrics we discussed in class. You may use other measures at your discretion, but the follo
Valuation The process of finding out the current value of an asset or company is known as valuation. There are various techniques that can be utilized to find value, few are su
Short Term Solvency or Liquidity Ratio's CR: The Current Ratio is calculated by current assets to current liabilities and is the index of company's financial stab
Explain about the Internal controls of benchmarking "Comprises control environment and control procedures. It includes all the procedures (internal contr
Illustrate the meaning of Gearing Gearing is the relationship between equity anddebt. Debt is typically long term liabilities that the organisation has. Equity is all the shar
Q. Observation of capital structure? Droxfol Co has long-term funding provided by ordinary shares preference shares and loan notes. The rate of return necessary by each source
SHAREHOLDER VALUE There are various measures used by market analysts and financial experts to derive the maximum Shareholder Value of a particular company but we would take the
What are the risks associated with using a large amount of short-term financing for working capital? Using a large amount of short-term financing in general allows funds to be
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