This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Formulas for Test 2: FINA 465 Chapter 8 1) Change in interest rate in the i th bucket: NII i = (GAP i ) R i = (RSA i RSL i ) R i Chapter 9 2) The price of a bond is the present discounted value of all future cash flows. P = n t=1 [CF t /(1+R) t ] 3) The duration of any fixedincome security that pays interest annually is given by: D = n t=1 [CF t t/(1+R) t ] / n t=1 [CF t /(1+R) t ] =&amp;amp;amp;gt; D = n t=1 [PV t t] / n t=1 [PV t ] D = duration measured in years CF t = cash flow received at the end of period t n = last period in which cashflow is received R = is the annual yield or current level of interest rates in the market PV t = present value of the cash flow from period t 4) The change in price for a small change in interest rate: P = D[R/(1+R)]P 5) Duration of assets: D A = X 1A D 1A + X 2A D 2A + + X n A D n A Duration of liabilities: D L = X 1L D 1L + X 2L D 2L + + X m L D m L Where X i A and X i L are the market value proportions of each asset or liability held in the...
View Full
Document
 Spring '11
 Berger
 Interest, Interest Rate

Click to edit the document details