Ytm 7 9 11 price price approx actual 98096 100000

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Unformatted text preview: 6.62 712.37 * 15-year bond, 7% coupon, interest paid annually Actual vs. Approximate Bond Prices 1200.00 Price Approx. Actual 600.00 6% 8% 10% YTM 12% Which of the following can have negative convexity? Which a. a callable bond b. a noncallable bond c. a mortgage-backed security d. a and c* e. none of the above Properties of Duration Duration is inversely related to the coupon rate. Duration is inversely related to the yield to maturity. Duration generally increases with maturity, but at a decreasing rate. If the coupon rate is greater than zero, the duration is less than the maturity. less For zero-coupon bonds, duration equals maturity. For For deep discount bonds, a point is reached at which duration decreases as maturity increases. duration Duration vs. Maturity 60 50 M atur ity 40 0 coupon rate 3% coupon rate 6% coupon rate 9% coupon rate 12% coupon rate 15% coupon rate 30 20 10 0 0 10 20 30 Duration 40 50 60 Interest Rate Risk Interest The yield to maturity calculation assumes The that the yield to maturity (YTM) does not change over the life of the bond. – If the YTM does change, you probably won’t If earn your original YTM. – This is called interest rate risk. Two types of interest rate risk – Price risk – When interest rates rise, the price of Price...
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