metad719_ProblemSet2 (5).xlsx - Fixed Income Problem Set#2 Interest Rate Risk Bond Duration and Convexity 2019 Spring As a homework exercise[to be done

metad719_ProblemSet2 (5).xlsx - Fixed Income Problem Set#2...

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Fixed Income Problem Set #2: Interest Rate Risk, Bond Duration and Convexity 2019 Spring Fixed Income Analysis =1= 2019 Fall1 BU MET As a homework exercise [to be done at home], you have the choice of doing these calculations using a financial [i] The following questions are set up with "template boxes" for you to fill in the inputs for various buttons on your financial calculator. Hint: try to "work in periods and periodic rates". [ii] You can always use the corresponding Excel function to doublecheck your calculator answers. Why learn to do it both ways? During exam, there is no guarantee that you will have access to Excel. 2019 Fall1 Name: [leave answers in 4-decimal places] <put your name on above line> PS: Some of these questions and calculations should look familiar: they are overlapping material between … … AD-717 Investment Analysis & Portfolio Management and AD-719 Fixed Income Analysis. Part1: Price Sensitivity to Changing Bond Market Rates 21. Bond price sensitivity when bonds with an initial low market rate increase by 1%. Calculate the price of the bonds from Period 1 to Period 2 with the following data: Assume C/Y = 2 [semiannual coupons] State all calculated bond prices as positive numbers. a) semiannual coupons with a Face = $1,000 Initial market rate of bond = 3% Period 1 Coupon Maturity (Years) Rate 5 30 3% 6% 9% b) semiannual coupons with a Face = $1,000 Two days later, market rate changed to 4% Period 2 Coupon Maturity (Years) Rate 5 30 $723.2444 3% $1,138.3778 6% $1,553.5113 9% c) %∆ in bond price from Period 1 to 2 when market rate changes from 3% → 4% Coupon Maturity (Years) Rate 5-year 30-year 3% 6% 9% 22. [i] Shorter maturity (e.g. 5-Year) versus longer maturity (e.g. 30-Year) bonds? [ii] Lower coupon (e.g. 3%) versus higher coupon (e.g. 9%) bonds? Hint: Bond price sensitivity to its market rate is Interest Rate Risk … … in Module #2, you will learn that this can be characterized by Duration properties of bonds. Put your response below: calculator or using Excel. Our suggestion is that you learn to do it both ways : From above calculations, what can you conclude about the relative sensitivity of bond prices to changes in the bond's market rate with regard to the following bond charateristics?
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Fixed Income Problem Set #2: Interest Rate Risk, Bond Duration and Convexity 2019 Spring Fixed Income Analysis =2= 2019 Fall1 BU MET
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Fixed Income Problem Set #2: Interest Rate Risk, Bond Duration and Convexity 2019 Spring Fixed Income Analysis =3= 2019 Fall1 BU MET 23. In Question 1, we explored the bond price sensitivity when bonds with a low initial market rate changes [from 3% to 4%]. In this question, we will do the following similar calculations for bonds with a much higher initial market rate [changing from 10% to 11%]: a) semiannual coupons with a Face = $1,000 Initial market rate of bond = 10% Period 1 Coupon Maturity (Years) Rate 5 30 3% 6% 9% b) semiannual coupons with a Face = $1,000 Two days later, market rate changed to 11% Period 2 Coupon Maturity (Years) Rate 5 30 3% 6% 9% c) %∆ in bond price from Period 1 to 2 when market rate changes from 10% → 11% Coupon Maturity (Years) Rate 5-year 30-year 3% 6% 9% 24. a) Bond price sensitivity of bonds at different level of bond market rates, maturity, and coupon rates.
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  • Fall '16
  • Larry
  • Bond duration, Fixed income analysis, Bond convexity

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