Homework Chapter 18 - iv. The Treasury yield curve is flat...

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Chapter 18 – Managing Funds against a Bond Market Index 1) John Stevenson is the portfolio manager of the Omega Corporate Bond Fund and owns $20 million par value of bond B1. The market value of the bond is $15 million. The effective dollar duration of the bond for a 100 basis point change in interest rates is $2.0 million. Stevenson is contemplating switching out of bond B1 into bond B2. The market value of bond B2 is $70 per $100 of par value with an effective duration of 8.0. How much of the par value of bond B2 would have to be bought to maintain the same dollar exposure (to a small parallel shift in interest rates) as bond B1? a. $25.0 million b. $31.25 million c. $35.71 million d. $142.86 million 2) A bond portfolio manager is contemplating the purchase of a corporate bond with the following characteristics: i. A coupon rate of 11% ii. 4 years remaining until maturity iii. The current price of the bond id 98.4321 with a yield of 11.5%
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Unformatted text preview: iv. The Treasury yield curve is flat at 8.0% v. The credit spread for the issuer is 350 basis points at all maturities What is the total effective return on this investment, assuming a 1 year investment horizon, a coupon reinvestment rate of 6%, no change in the treasury yield curve at the horizon date, and a 250 basis point decline in the credit spread for all maturities at the horizon date? b. 8.71% c. 17.42% d. 18.05% e. 18.18% 3) Issuer exposure is commonly associated with which of the following types of risk? a. Event risk b. Income risk c. Principal risk d. Yield Risk 4) Given a market value of $100,000 for an issue AAA and duration of 6, what is the duration contribution of issue AAA to a portfolio valued at $150 million with a duration of 9? a. 0.004 b. 0.006 c. 0.660 d. 0.025...
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This note was uploaded on 04/04/2012 for the course ECON 313 taught by Professor India during the Spring '12 term at University of San Francisco.

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Homework Chapter 18 - iv. The Treasury yield curve is flat...

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