Extra Problems 5a

Extra Problems 5a - 24 in the text 4 Calculate the duration...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
ACTSC 231 Extra Problems 5a 1. Find the duration at i = 8% of a common stock which pays annual div- idends. Assume that the next dividend is payable in 6 months time and the each dividend is 3% larger than the previous one. 2. Mary owes $1210 at the end of 2 years. She has $1000 available to invest. based on immunization. Assume the following investment are available: (a) cash (earns i = 10%) and zero coupon bonds of any maturity (yield- ing i = 10%) (b) cash (earns i = 10%) and 3-year zero coupon bonds (yielding i = 10%) 3. Find the duration at i = 8% of a common stock which pays annual divi- dends. Assume that the next dividend is payable in 1 years time and the each dividend is 3% larger than the previous one. (very similar to question
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 24 in the text) 4. Calculate the duration at i = 5% of a 10-year annuity-immediate (annual payments). 5. Calculate the duration and convexity of a loan repaid with equal install-ments over n-periods if i = 0 . (hint: P n t =1 t = 1 2 n ( n + 1) and P n t =1 t ( t + 1) = 1 3 n ( n + 1)( n + 2) ) 6. Consider a 2-year $1000 bond with 7% coupons paid semiannually. (a) Calculate the volatility and convexity of the bond at an interest rate of 10% compounded semiannually. (b) Using part a) calculate the approximate relative change in the price of the bond if interest rates increased from10% to 11% compounded semiannually. (c) Compare your answer in b) to the actual relative price change. 1...
View Full Document

This note was uploaded on 02/07/2010 for the course ACTSC 231 taught by Professor Chisholm during the Spring '09 term at Waterloo.

Ask a homework question - tutors are online