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Unformatted text preview: ACTSC445/845 ASSIGNMENT 2. DUE ON WEDNESDAY, JUNE, 9TH IN CLASS If you choose to use excel to do the calculation, submit your electric file with the file named as your user name. Specify in your hard copy that the details for computation is referred to the electric file. (1) You want to construct a portfolio formed of 2-year, 6-year, and 8-year zero-coupon bonds. All bonds have a face value of $100. The initial amount of money to be invested is 5 , 000. Assume the continuously compounded spot rates for 2, 6, and 8 years are 0 . 025, 0 . 04, and 0 . 045, respectively. (a) (5 points) Determine how many units of each zero-coupon bonds you need to buy if you want the Fisher-Weil duration and convexity to be 4 and 20, respectively. (b) (5 points) Assume all spot rates instantaneously increase by 10bp. Use the Fisher-Weil duration and convexity set in part (1a) to approximate the change of value (in dollars) of the portfolio determined in (1a). Compare your answer with the true change of value.with the true change of value....
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This note was uploaded on 10/19/2010 for the course ACTSC 445 taught by Professor Christianelemieux during the Spring '09 term at Waterloo.
- Spring '09