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!
Modified duration is used to determine the percentage change in the bond's prices for a 100 basis point (1%) change in the yield. The underlying assumption is that the bond's expected cash flows would not change when yield changes. It means that to calculate the value of V- and V+ in equation (1) the same cash flows used for calculating V0 are used.
The assumption that cash flow would not change when yield changes is not true for all types of bonds. It is true in case of option-free bond but it is not applicable in case of putable and callable bonds. For example, the payments made by the Treasury Department to the holders of its obligations do not change when interest rates change. However, the same is not true for bond with embedded options. The expected cash flows may change significantly with the change in the yield.
Effective duration is a duration calculation for bonds with embedded options. Effective duration takes into account both the discounting at different interest rates and how the expected cash flow may change. Effective duration can be estimated using modified duration if the bond with embedded options behaves like an option-free bond. This behavior occurs when exercise of the embedded option would offer the investor no benefit. As such, the security's cash flows cannot be expected to change given a change in yield. There can be huge difference between the modified duration and effective duration. For example, the modified duration for a callable bond could be 7, whereas the effective duration could be 5. Sometimes it may be the other way round, i.e for certain mortgage obligations the effective duration may be more than the modified duration. Therefore, we can conclude that the effective duration is a more appropriate measure in case of bonds with embedded options.
Collar A collar can be established by holding a share, along with purchasing a protective put and writing a covered call, where both options at out-of-money.. For Example
You have an investment capital of $1,000,000. You plan to invest a portion of this money in Treasury bonds and the remainder in a stock portfolio. Treasury bonds are expected to
Default risk is the risk that arises when the issuer is not able to satisfy the terms and conditions of the obligation with respect to timely pa
The process of securitization can best be understood by taking the following example. Assume that there exists an NBFC which has hire purchase as its major busine
The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''s expected net income t
Duration and Convexity of MBS A graph decpicting the price of the security under study and the interest rates helps in assessing the duratio
Identify whether the following items belong on the income statement or the balance sheet. a. Interest Expense IS l. Cash BS b. Prefer
can u tell me the various approaches followed by FMCG Companies in test markets
Can you draw Capital asset pricing model with example and explain?????
Source documents of an accounting system: Source documents are those documents that identify the particular transaction that is being recorded. They act as an internal control
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