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.
Q. What are the financing methods? - The export transaction could be correlated to a bill of exchange. If this bill was established (guaranteed) by the bank it could be discoun
These funds represent borrowings made for a period of one day to upto a fortnight. However, the mechanism adopted to lend funds to the call and the notice money m
Ask question #Minimum 100 words acceptedaqs #
PEST analysis Political for instance political culture, bureaucracy of regulating competition Economic for instance exchange rates, interest rates, taxation or busines
I need report on Weighted Average Cost of Capital. Do you provide help in topic Weighted Average Cost of Capital? I need expert's assistance to solve my college assignment. Please
Repo rates vary from transaction to transaction. They depend upon a variety of factors like: Collateral's quality Repo term
Evergreen Company Ltd has been promoted by promoters. They are trying to decide how the company could be financed. There are three choices: i. Issue Rs 500,000 in Equity shares
Net Income approach says that a raise in the proportion of debt financing in capital structure results in an increase in the proportion of a cheaper source of funds. This in turn r
formula and explanation for Gordon''s dividend capitalization method
On-the-run treasury issues are the most recently auctioned issues of a given maturity. They include Treasury bills of 3-month, 6-month and 1-year maturity; treas
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