E120_Spring12_HW5 - E120 Homework 5 Due 29/02/2012 1. For...

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E120 Homework 5 Due 29/02/2012 1. For the following bond, calculate the bond’s duration: 8% coupon rate pays annual coupons, $1000 face value, 9% yield to maturity, seven years to maturity. Use this information to estimate the percentage change in bond price given a - 0 . 25% change in the YTM. 2. For the following bond, calculate the bond’s duration: 7 . 50% coupon rate, pays semiannual coupons, $1000 face value, 9% yield to maturity, three years to maturity. Use this information to estimate the percentage change in bond price given a +0 . 5% change in the YTM. 3. Suppose you have two bonds with the same yields to maturity. Bond A has duration D A and price P A . Bond B has duration D B and price P B . Show that a portfolio consisting of these two bonds (one share of bond A , and one share of bond B ) has duration: D P = P A P A + P B D A + P B P A + P B D B . 4. Consider a two-year spot rate of 5% and a five-year spot rate of 6%. What is the (equilibrium) implied forward rate for a loan starting in two years and maturing three
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This note was uploaded on 04/04/2012 for the course ENGIN 120 taught by Professor Ilan during the Spring '08 term at University of California, Berkeley.

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E120_Spring12_HW5 - E120 Homework 5 Due 29/02/2012 1. For...

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