A 12.75-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 150.3 and modified duration of 11.81 years. A 30-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration—11.79 years—but considerably higher convexity of 231.2.
Suppose the yield to maturity on both bonds increases to 9%. What will be the actual
percentage capital loss on each bond? What percentage capital loss would be pre- dicted by the duration-with-convexity rule?
Repeat part ( a ), but this time assume the yield to maturity decreases to 7%.
Compare the performance of the two bonds in the two scenarios, one involving an increase in rates, the other a decrease. Based on their comparative investment perfor- mance, explain the attraction of convexity.
In view of your answer to ( c ), do you think it would be possible for two bonds with equal duration, but different convexity, to be priced initially at the same yield to maturity if the yields on both bonds always increased or decreased by equal amounts, as in this example? Would anyone be willing to buy the bond with lower convexity under these circumstances?
The size of the slab shown in Fig. 15.20 is 16 × 8 ft; it is supported by the beam AB, which is fixed at both ends. The uniform dead load on the slab (including its own w...Jul 08 2020
consider a competitive firms demand for a factor of production as a function of the factor price when the prices of other factors are given . let us consider two cases: ...Aug 18 2021
Three types of customers arrive at a small airport: check baggage (30%, that is, for each arriving customer there is a 0.30 probability that this is a “check-baggage” cus...Apr 03 2021
Dry saturated steam at 7 bar expands reversibly in a cylinder behind a piston until the pressure is 0.1 bar. If heat is supplied continuously during the process in order ...Jun 06 2020
What is the future value in 23 years of an ordinary annuity cash flow of $2,823 every quarter of a year at the end of the period, at an annual interest rate of 8.50 perce...Jul 16 2021
Bond valuation Nungesser Corporation's outstanding bonds have a $1,000 par value, a 7% semiannual coupon, 7 years to maturity, and an 7.5% YTM. What is the bond's price? ...Aug 20 2020
Had Finn not complied with Monus’s expense manipulation requests early on, would the Phar-Mor fraud have progressed to the extent it did? Also, how would Finn’s career ha...Aug 16 2021
Virus and how to get rid of it?Apr 18 2020
In the case of a binding price floor, the price paid in the market will be:a. more than the free market equilibrium price. b. less than the free market equilibrium price....Jun 11 2021
What technology and social media tools do you use to communicate in writing on the job and in your personal life? When using these tools, do you write in complete sentenc...Jun 10 2021