Theory of interest - term structure of interest rates
Course:- Accounting Basics
Reference No.:- EM13494

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Accounting Basics

1.  The current price of a bond is $114.72 and the current yield is 6.00%. The modified duration of the bond is 7.02. Use the modified duration to estimate the price of the bond if the yield increases to 6.10%.

A.114    B.120    C.210    D.220    E.300
2.  A two-year bond has 8% annual coupons payable semiannually. The bond's yield is 10% compounded semiannually. Calculate the modified duration of the bond.

A.0.8    B.1.0    C.1.5    D.1.8    E.2.0 ok
3.  A 22-year bond pays 7% annual coupons and has a current price of $81.12. The annual effective yield on the bond is 9%. The Macaulay duration of the bond is 10.774. Estimate the new price if the yield falls to 8.95%.

A.76    B.78    C.80    D.82    E.84
4.  A 15-year mortgage is repaid with level monthly payments. The yield is 12% compounded monthly. Calculate the Macaulay duration of the mortgage.

A.3.2    B.5.4    C.7.1    D.9.7    E.10.3
5.  A 20-year bond yielding 9% has a price of $127.79. If the bond's yield falls to 8.75%, then the price of the bond will increase to $130.65. If bond's yield increases to 9.25%, then the price of the bond will fall to $125.02. Calculate the effective duration of the bond.

A.8.6    B.8.7    C.8.8    D.8.9    E.9.0
6.  A five-year bond with a coupon of 6.7% pays coupons semiannually. It is currently yielding 6.4%. Its current price is $101.2666. If the bond's yield increases by 10 basis points, then its price falls to $100.8422. If the bond's yield falls by 10 basis points, then its price rises to $101.6931. Calculate the effective convexity of the bond.

A.15.67  B.17.75  C.18.52  D.19.32  E.20.74
7.  The modified duration of an 8-year bond is 5.35 and its convexity is 39.19. Estimate the percentage change in the price of the bond if its yield increases by 63 basis points.

A. -3.29%  B.-1.09%  C.1.09%  D.3.29%  E.5.14%

8.  An insurance company has committed to make a payment of $100,000 in 5 years. The insurance company can fund this liability only through the purchase of 4-year zero-coupon bonds and 10-year zero-coupon bonds. The annual effective yield for all assets and liabilities is 12%. Determine how much the bank should invest in the 4-year zero-coupon bond in order to immunize its position.

A.26401  B.26933  C.47286  D.47813  E.48005

9.  You are given the following information with respect to a callable bond:

675_Theory of Interest.png

  The current yield is 7%.

  Calculate the ratio of the modified duration to the effective duration of this bond.

  A.1.01   B.1.17    C.1.32    D.1.38   E.1.50
10. The current price of a bond is 100. The derivative of the price with respect to the yield to maturity is -700. The yield to maturity is 8%.

Calculate the Macaulay duration.
A.8    B.9    C.10    D.11    E.12

11. Given the following annual effective spot rates, find the present value of a 3-year bond paying 15% annual coupons and having a par value of $100.

1104_Theory of Interest1.png

12. Given the following yields and coupons for bonds with $100 of par value, determine the 2-year annual effective spot rate.

1336_Theory of Interest2.png

13. Given the following table of forward rates, find the present value of a 3-year bond paying 15% annual coupons and having a par value of $100.

A.118.66  B.120.24  C.132.86  D.144.12  E.151.97

2045_Theory of Interest3.png

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Accounting Basics) Materials
For tax purposes, the corporation has elected to take advantage of the maximum benefit for expensing organizational costs. No additional book/tax differences exist. For the
During the current year, the Yankton Company purchased 200 shares of in the Sorros Company for $13,000 as a temporary investment. At the end of the year, the market value of
The appraised value of the land on which the warehouse is located was unchanged. The warehouse (building) was valued on December 31,2014, at $82,600. The useful life and the
What characteristics describe innovative organizations? If you were attempting to transform an average organization into an innovative organization, what is the most signifi
Its average product sells for $28 a unit. the variable cost per unit is $18. the store experiences a 45 percent tax rate. What are the store's fixed costs expected to be nex
Universal Company has made changes in its inventory handling policies that are expected to increase turnover from 7 to 8 times per year.
Imagine you are the Director of Internal Audit and executive management has asked you to work with the Chief Information Officer to evaluate the security over Information Te
A hospital manager budgeted $100,000 for monthly nursing expenses in the hospital's well-baby clinic. The manager expected that the clinic would treat $5000 babies and pay i