Homework2

Bond Markets, Analysis and Strategies (6th Edition)

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Homework #2 1) Period CF PV of $1 @ 3% PV of CF PVCF*t 1/[(1.03)^(t+ t(t+1)CF 1 3.5 -0.9709 ($3.3981) ($3.40) 0.92 7 2 3.5 -0.9426 ($3.2991) ($6.60) 0.89 21 3 3.5 -0.9151 ($3.2030) ($9.61) 0.86 42 4 3.5 -0.8885 ($3.1097) ($12.44) 0.84 70 5 3.5 -0.8626 ($3.0191) ($15.10) 0.81 105 6 3.5 -0.8375 ($2.9312) ($17.59) 0.79 147 7 3.5 -0.8131 ($2.8458) ($19.92) 0.77 196 8 3.5 -0.7894 ($2.7629) ($22.10) 0.74 252 9 3.5 -0.7664 ($2.6825) ($24.14) 0.72 315 10 3.5 -0.7441 ($2.6043) ($26.04) 0.7 385 11 3.5 -0.7224 ($2.5285) ($27.81) 0.68 462 12 3.5 -0.7014 ($2.4548) ($29.46) 0.66 546 13 3.5 -0.6810 ($2.3833) ($30.98) 0.64 637 14 3.5 -0.6611 ($2.3139) ($32.39) 0.62 735 15 3.5 -0.6419 ($2.2465) ($33.70) 0.61 840 16 3.5 -0.6232 ($2.1811) ($34.90) 0.59 952 17 3.5 -0.6050 ($2.1176) ($36.00) 0.57 1071 18 3.5 -0.5874 ($2.0559) ($37.01) 0.55 1197 19 3.5 -0.5703 ($1.9960) ($37.92) 0.54 1330 20 103.5 -0.5537 ($57.3054) ($1,146.11) 0.52 43470 Total ($107.44) ($1,603.22) 52,780.00 Macaulay duration (half years) 14.92 Macaulay duration (in years) 7.46 Modified duration 7.24 Second derivative 28,441.67 Convexity measure (half years) 264.72 + Convexity measure (years)
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Unformatted text preview: 66.18 = Dollar convexity measure 7,110.42 b) c) First order approximation-1.0866% 13.7632% Second order approximation-1.0791% 14.9577% Approx price: 106.271 122.226 106.279 123.509 Actual price: 106.280 123.600 2) Bond A Bond B Price 100 80 Mod. Dur. 6 7 Dollar Duration 600 560 Apprx. %P chg-1.50%-1.75% a) Bond A has a higher Dollar Duration and Bond B reacts more adversely to a 25 bp move. b) Bond B is considered more volatile. 3) Bond Market Value (Price) Duration (years) Duration Contribution W $13,000,000 2 0.19 X $27,000,000 7 1.35 Y $60,000,000 8 3.43 Z $40,000,000 14 4.00 $140,000,000 8.96 Portfolio Dur. =(13/140)*2+(27/140)*7+(60/140)*8+(40/140)*14 8.96 Apprx. %P chg-4.48% … 6.41 18.66 36.23 58.62 85.37 116.04 150.22 187.51 227.56 270.03 314.6 360.97 408.87 458.03 508.21 559.2 610.78 662.75 714.94 22686.67 28,441.67...
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This document was uploaded on 04/07/2008.

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Homework2 - 66.18 = Dollar convexity measure 7,110.42 b c...

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