KIC000054 - Size of Coupon and Interest Rate Sensitivity...

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Size of Coupon and Interest Rate Sensitivity Low coupon bonds have ~ rate sensitivity than high upon bonds. interest S200~1 -Coupon S150 Zero 8 $]00 ~ S50 SO Bond Duration and Interest Rate Sensitivity Duration measures the responsiveness of a bond's price to interest rate changes. Duration is computed as: f~ H (l+r)' Po Modified Duration = D' = ~ l+r Duration =D Duration for Citicorp Bond The Wall Street Journal reports the following details on a corporate bond: );.Issuer Citicorp );.Face Value $100 );.Coupon 8% );.Maturity 10 years Suppose market price equals $114.72 and the required rate is 6%. Then duration is given by: 10 /.S8 10.S100 f.r (1+0:06)' + ~ Duration SI14.72 7.445 years Bond Duration and Interest Rate Sensitivity The sensitivity of a bond's value to changing interest rates depends upon GThe length of time to eric; @The pattern of co.sn I{;)S ~rovided by the bond 8 The yield to maturity We need a measure which incorporates all three factors. Bond Duration and Interest Rate
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.

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KIC000054 - Size of Coupon and Interest Rate Sensitivity...

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