Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Market price is used for determining the duration of a mortgage-backed security in the coupon curve duration. This approach to calculate the duration of mortgage-backed security was suggested by Douglas Breeden. The coupon curve represents generic pass-through securities of a particular issuer with different coupon rates. Duration is obtained by the coupon curve of prices rolling up and down. The prices obtained from rolling up and down the coupon curve of prices are substituted into the duration formula.
Let us determine the coupon curve duration from the data given below:
Coupon
Price
7%
8%
9%
10%
11%
12%
82.19
88.06
93.38
97.34
101.19
111.23
Let us calculate the coupon curve duration for the 9% coupon pass-through. If the yield declines by 100 basis points, then we assume that the price of the 9% coupon pass-through will also increase to the price of the current 10% coupon pass-through. Similarly, if the yield of the 9% coupon passthrough increases by 100 basis points, the price would decrease to the price of the current 8% coupon pass-through. Therefore, the price would be 97.34 when there is a decline of 100 basis points in the yield while the price would be 88.06 when the yield increases by 100 basis points.
P0 = 93.38
P+ = 88.06
P- = 97.34
Δy = 0.01
The estimated duration is as follows:
Duration = 97.34 - 88.06
2(93.38)(0.01)
= 4.97.
Q. What is Commercial Papers? Commercial Papers: Commercial papers (CPs) are short-term, unsecured securities issued by highly creditworthy large companies. They are issued wit
Debt holders versus Shareholders A second agency problem arises because of potential conflict between stockholders and creditors. Creditors lend finances to the firm at rates w
Previous MOS = 750 - 270 = 480 aircraft; Revised MOS = 750 - 420 = 330 aircraft Explanation that a lower MOS = lower levels of profit and therefore exposes the business to more
You have $20 to spend on high quality pens and low quality pens. High quality pens cost $5 each and low quality pens cost $2 each. (a) Suppose that you will spend your entire
Q. Illustrate Earning Yield Method? Earning Yield Method: - As per this method, cost of equity capital is calculated by establishing a relationship between earning per share an
I need help working through this problem. What is the stock price of Firm X when provided the following information? Beta – 1.42 MRP – 10% Rf – 3% G – 4% Dividend next period-
Question: You have just been appointed the secretary of the ALM Committee (ALCO) of ABN Bank. The ALCO members have some queries relating to the liquidity risk faced by the ban
What is the fastest way to be rich?
Q. Determinants of Working Capital? Determinants of Working Capital: - The working capital necessity is determined by a large number of factors but generally the following fa
Discuss how a business might limit agency problem between management and creditors
The correct estimated duration is:Duration = (97.34 - 88.06) / 2(93.38)(0.01) = 4.332832
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!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd