Duration Exercise

Duration Exercise - inexperienced investor? What factors...

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Duration Exercise Note: you will want to consult the appendix at the end of Ch. 6 (Bond Sensitivity) for guidance is completing this exercise You are evaluating an investment in an annual pay bond with exactly four years to maturity. The bond’s coupon rate is 10% and the bonds current YTM is 13%. 1. Calculate the bonds duration and modified duration. 2. How would you explain the concept of duration to an
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Unformatted text preview: inexperienced investor? What factors influence duration? 3. In quantitative terms, what insight does duration give us about the interest rate sensitivity of a bond? 4. Suppose that the duration of the bond you are evaluating is 3.25 (it isn’t, but go with it for this question). What will happen to the price of the bond if interest rates decrease by 2%?...
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This note was uploaded on 10/23/2011 for the course BUS M 301 taught by Professor Jimbrau during the Fall '11 term at BYU.

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