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State the important bond pricing relationships.
What is duration and how it is calculated?
How is the volatility of a bond related to its duration?
What are the important properties of duration?
Discuss the passive strategies for managing a bond portfolio.
What is immunisation?
What is cash flow matching?
Explain the steps involved in horizon analysis.
Describe the swaps done by bond portfolio managers to exploit relative mispricings.
What is an interest rate swap? Explain how it works.
What is convexity? How is it calculated?
The following information is available for a bond.
Face value: Rs 100
Coupon rate: 9 percent payable annually
Years to maturity: 5
Current market price: Rs 105
What is the duration of the bond? Use the approximate formula for calculating the yield to maturity.
A zero coupon bond of Rs 10,000 has a term to maturity of eight years and a market yield of 10 percent at the time of issue.
(a) What is the issue price?
(b) What is the duration of the bond?
(c) What is the modified duration of the bond?
(d) What will be the percentage change in the price of the bond, if the yield declines by 0.5 percentage points (50 basis points)