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.
Describe the value maximisation criterion In applying the value maximisation criterion, term value is used in terms of worth to the owners, which is, ordinary shareholders. Cap
What are the specefic control procedures of benchmarking Specific control procedures must be in place which include: O Organisational structure (clear lines of responsibilit
Q. Explain about Book Value Weights? Book Value Weights: - Book value weights are calculating form the values taken from the balance sheet. The weight to be assigned to every s
What are number of factors that influence the shape of the yield curve? There are some of factors which influence the shape of the yield curve as follows: (1) Expectations
name, cost ,features and size
Credit unions Credit unions are non-profit institutions jointly organised and owned by their members (depositors). Their main objective is to satisfy the depository and lending
Explain learning outcomes of financial management By the end of this subject guide as well as having done the relevant readings and activities you should be able to
Types of asset-backed securities 1. Auto Loan-Backed Securities (ALBs) 2. Credit Card Receivab
Hedge Fund Indices Substantial increase in the use of Hedge Funds in recent times has created demand for appropriate indices that can offer a good tool to assess and benchmark
what are the assumptions of MM(Modigliani Miller) approach
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