fixed income 3 - Siming Zhu September 21, 2008 Fixed Income...

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Unformatted text preview: Siming Zhu September 21, 2008 Fixed Income AEM4260 Homework #3 Chapter 4 Q3. It is not possible to accurately determine which bond will have the highest price volatility based on the limited information provided. There are two factors affecting the price volatility of a bond. A bonds price volatility is greater when either the stated coupon rate is lower or term to maturity is longer. In the given situation, bond X has the lowest coupon rate, but bond Z has the longest term to maturity. However, none of the given bonds has both the greatest term to maturity and the lowest coupon rate. Thus, it is not possible to determine which bond will have the highest price volatility. Q17. Bond Market Value Weight Duration (c) Contribution to Portfolio Duration W $13 million .092857 2 .185714 X $27 million .192857 7 1.35 Y $60 million .42857 8 3.42857 Z $40 million .285714 14 4 Total $140 million 1 8.96 a. The portfolio duration will be 8.96 b. For a 50 basis point change in the interest rate for all maturities, the percentage change in the...
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fixed income 3 - Siming Zhu September 21, 2008 Fixed Income...

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