Theory of interest - term structure of interest rates

Assignment Help Accounting Basics
Reference no: EM13494

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

Reference no: EM13494

Questions Cloud

Case study: fisher-price toys : The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.
Programming assignment : If the user wants to read the input from a file, then the output will also go into a different file . If the user wants to read the input interactively, then the output will go to the screen .
Effect of exchange rate changes on cash and cash : Effect of exchange rate changes on cash and cash
Write a rearch paper on wireless network mesh : Write a rearch paper on Wireless Network Mesh.
Theory of interest - term structure of interest rates : Term Structure of Interest Rates
Investigate the concept and process of marketing : Investigate the concept and process of marketing. Be able to use the concepts of segmentation, targeting and positioning.
Draw a relay construction diagram : Draw a relay construction diagram and briefly explain the operation of a relay.
Foreign direct investment in the automobile industry : Prepare rearch on "Impact of political economy on inward foreign direct investment in the automobile industry".
Determine the price of computers in a free market : Examine the factors that determine the price of computers in a free market.

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd