Consider 3 zero coupon bond: Maturity Yld: 10 1.50%; 20 2.00%; 30 2.25% Q2a. calculate duration and convexity, dollar duration and dollar convexity for all three Q2b. how to hedge the duration risk of a 100M position in 20Y with 10Y and with 30Y respectively? Q2c. What is the dur and convexity effect of 5 bps steepening caused by 10Y up 10 bps; 20Y up 15 bps for the 10 vs 20Y trade?? Q2d. What is the dur and convexity effect of 5 bps flattening caused by 20Y up 15 bps; 30Y up 10 bps for the 20 vs 30Y trade?

Consider 3 zero coupon bond: Maturity Yld: 10 1.50%; 20 2.00%; 30 2.25% Q2a. calculate duration and convexity, dollar duration and dollar convexity for all three Q2b. how to hedge the duration risk of a 100M position in 20Y with 10Y and with 30Y respectively? Q2c. What is the dur and convexity effect of 5 bps steepening caused by 10Y up 10 bps; 20Y up 15 bps for the 10 vs 20Y trade?? Q2d. What is the dur and convexity effect of 5 bps flattening caused by 20Y up 15 bps; 30Y up 10 bps for the 20 vs 30Y trade?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 10MC: Suppose there is a large probability that L will default on its debt. For the purpose of this...

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Q2. Consider 3 zero coupon bond: Maturity Yld5 1.50%10 1.75%20 2.25% Q2a. calculate duration and convexity, dollar duration and dollar convexity for all three Q2b. how to hedge the duration risk of a 100M position in 10Y with 5Y and with 20Y respectively? Q2c. What is the total convexity for the 10Y long with 5Y hedge and with 20Y hedge respectively? Q2d. What is the duration and convexity PnL for a 10 bps parallel movement upward AND downward respectively? Q2e. What is the dur and convexity effect of 1 bps steepening for the 10 vs 5Y trade? (5Y up 50 bps; 10Y up 51 bps)? hint: for duration effect, the first 50 bps for both maturities will cancel. for convexity effect, calculate convexity impacts for both legs separately and then sum up.
Question 3. A fixed rate bond with notional 1 pays annual coupons of c at times T1, T2, . . . , Tn where Ti+1 = Ti + 1 and notional 1 at time Tn. a) Write down the bond price BFXD c (t) at time t ≤ T0 in terms of ZCBs. b) Suppose t = T0 = 0. The yield of the bond is defined as the value Y such that B FXD c (0) = Xn i=1 c (1 + Y ) i + 1 (1 + Y ) n , that is, the rate at which IRR discounting gives the bond price. By summing a geometric series, show that BFXD c (0) = 1 if and only if Y = c. c) By writing a swap as the difference between a fixed rate bond and a floating rate bond, show that BFXD c (0) = 1 if and only if c = y0[0, Tn]. Remark 1. This exercise shows that the T-year spot swap rate is the bond coupon such that a T-maturity bond has price par, that is 100% of notional.
Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.
13. Consider a coupon bond with coupon payment=4.25, M=100, and n=2. Suppose ?1 = 4% and ?2 = 4.24%. Consider a forward contract for the delivery of the coupon bond in one period from today. Calculate the forward price using the following two approaches: 1) use the forward rate to price the forward contract; 2) use the cost of carry approach: spot-forward parity adjusted for the coupons.
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Col 1.39 0.153 What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places) Risk-free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. Repete Co.%
Give typing answer with explanation and conclusion Consider a coupon bond with coupon payment=4.25, M=100, and n=2. Suppose ?1 = 4% and ?2 = 4.24%. Consider a forward contract for the delivery of the coupon bond in one period from today. Calculate the forward price using the following two approaches: 1) use the forward rate to price the forward contract; 2) use the cost of carry approach: spot-forward parity adjusted for the coupons.
Which of the following statements regarding bonds and their terms is FALSE? *** OA. When we calculate a bond's yield to maturity by solving the formula, Coupon Coupon Coupon + Face Price of an n-period bond = (1 + )" + + + MA (1+)¹ (1+)² the yield we compute will be a rate per coupon interval. OB. The internal rate of return (IRR) of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default - free bond at its current price and hold it to maturity. OC. The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond. OD. Financial professionals also use the term spot interest rates to refer to the default - free zero- coupon yields.
Consider a two-period coupon bond with face value M = 100, recovery rate a = 0.5, per period coupon rate c = 10%, and survival rate λ = 0.9. If the risk-free rate per period is 5%, what is the bond price now? P = 9+5.5 1+5% + = 99.116 ■ 89.1+4.95 (1+5%)²
13. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's Cost of Funds Loan X₁ 0.45 0.55 1 2 5.5% 3.5 Annual Fees 2.25% 1.75 Loss to Fl Expected Given Default Default Frequency 30% 20 3.5% 1.0 P12 = -0.15 Calculate the return and risk on the two-asset portfolio using Moody's Analytics Portfolio Manager.
n = 10 r0,0 = 5% u = 1.1 d = 0.9 q = 1 - q = ½ Compute the price of a zero-coupon bond (ZCB) that matures at time t=10 and that has face value 100.
4. Consider the following zero-coupon yields on default free securities: r₁ = 5.80%, r2 = 5.50%, r3 = 5.20%, r4 = 5.00%, r5 = 4.80%, where rn represents the zero-coupon yield for maturity n. The yield to maturity (YTM) of a 3 year default free security with a face value of $1,000 and an annual coupon rate of 6% is closest to: A) 5.5% B) 5.8% C) 5.7% D) 5.2% E) 6.8%
Consider the following zero coupon bonds:Bond Yrs to Mat. Yield to Maturitya 1 0.0433b 2 0.046c 3 0.0495d 4 0.0511e 5 0.0531f 6 0.0555What is the forward rate for year5 Group of answer choices 0.0630 0.0593 0.0648 0.0611 0.0668 Please answer fast i give you upvote.