Question

In: Finance

Mary Hudson, CFA, is a bond analyst of Baker Street Fixed Income Portfolio, a %15 billion...

Mary Hudson, CFA, is a bond analyst of Baker Street Fixed Income Portfolio, a %15 billion fixed income mutual fund specializing in the U.S. fixed income market. John Watson Ph.D. one of the lead portfolio managers, has tasked Mary to analyze the interest rate sensitivity of a five year bond issued by Morgan Company. The bond has a coupon rate of 5% and pays coupon semi-annually. The yield to maturity is 6%. The semi-annual Macaulary duration is 8.9434 and the semi-annual convexity is 89.2189. If the yield to maturity falls to 4.5% what is the predicted price using annual modified duration and annual convexity

Round your answer to two decimal points:

Solutions

Expert Solution

Semi annualized macualay duration is first converted to modified duration. Then, semi annualized modified duration and semi annualized convexity is converted into annualized numbers. Then change in PV of bond is calculated in percentage terms. Previous PV is calculated to add the resulted percentage.

Full calculation is shown in the pic. (please provide feedback:)

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Mary Smith, a CFA candidate, was recently hired for an analyst position at the Bank of...
Mary Smith, a CFA candidate, was recently hired for an analyst position at the Bank of Ireland. Her first assignment is to examine the competitive strategies employed by various French wineries. Smith’s report identifies four wineries that are the major players in the French wine industry. Key characteristics of each are cited in the table below. In the body of Smith’s report, she includes a discussion of the competitive structure of the French wine industry. She notes that over the...
Case Study on Managing an Investment Portfolio As a recently hired CFA financial analyst for Horizon...
Case Study on Managing an Investment Portfolio As a recently hired CFA financial analyst for Horizon Investments you have been asked to make portfolio recommendation and setup an investment policy statement for three clients of the firm. 1) John Lambert has recently received his MBA and currently works for Oracle. He is 26 and recently married. He and hid wife have saved nearly $100,000 for a down payment on a home. He contributes 10% of his salary to a 401K...
Tony Lee, a CFA, is an analyst specialising in bond valuation; while Ann Jones, also a...
Tony Lee, a CFA, is an analyst specialising in bond valuation; while Ann Jones, also a CFA, is an equity analyst specialising in stock valuation. Who faces greater difficulty in the security valuation? Explain why.
1. Jaime Bond is a fixed income portfolio manager. He has the following investment alternatives: a....
1. Jaime Bond is a fixed income portfolio manager. He has the following investment alternatives: a. AA Corporate-Alegre Vengo bond with a coupon rate of 5%. This bond is trading at $ 925.       Jaime expects an increase of 40% in the price of this bond. b. AA Corporate-de La Montana bond, selling for $ 850 with a 6% coupon rate. Target price is par.   More important info:      Jaime investment horizon is 5 years. Alegre Vengo and De La Montana...
CFA Question- Rank the following bonds in order of descending duration Bond A: coupon 15%, Time...
CFA Question- Rank the following bonds in order of descending duration Bond A: coupon 15%, Time to Maturity is 20 years, Yield to Maturity is 10% Bond B: coupon 15%, Time to Maturity is 15 years, Yield to Maturity is 10% Bond C: coupon 0%, Time to Maturity is 20 years, Yield to Maturity is 10% Bond D: coupon 8%, Time to Maturity is 20 years, Yield to Maturity is 10% Bond E: coupon 15%, Time to Maturity is 15...
City Street Fund has a portfolio of $415 million and liabilities of $15 million. a. If...
City Street Fund has a portfolio of $415 million and liabilities of $15 million. a. If there are 80 million shares outstanding, what is net asset value? Net asset value            $ b-1. If a large investor redeems 3 million shares, what happens to the portfolio value? (Enter your answer in millions.) Portfolio value (Click to select)increasesdecreases to $  million. b-2. If a large investor redeems 3 million shares, what happens to shares outstanding? (Enter your answer in millions.) Shares outstanding (Click...
You own a fixed income portfolio with a single 10-period zero coupon bond with face value...
You own a fixed income portfolio with a single 10-period zero coupon bond with face value of $100 and a current yield of 6% per period. During the past 100 trading days, there were 50 days when the yield on this bond did not change; 15 days when the yield increased by 1 basis point, 15 days when the yield decreased by 1 basis point, 9 days when the yield increased by 5 basis points, 9 days when the yield...
You own a fixed income portfolio with a single 10-period zero-coupon bond with a face value...
You own a fixed income portfolio with a single 10-period zero-coupon bond with a face value of $100 million and a current yield of 6% per period. During the past 100 trading days there were 50 days when the yield on these bonds did not change, 15 days when the yield increased 1 basis point, 15 days when the yield decreased by 1 basis point, 9 days when the yield increased by 5 basis points, 9 days when the yield...
Assume that you are a financial analyst in the fixed income department of an investment bank....
Assume that you are a financial analyst in the fixed income department of an investment bank. You are given the following information: the 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are, respectively, 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum, with continuous compounding. Your task is to answer the following questions. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually....
Assume that you are a financial analyst in the fixed income department of an investment bank....
Assume that you are a financial analyst in the fixed income department of an investment bank. You are given the following information: the 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are, respectively, 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum, with continuous compounding. Your task is to answer the following questions. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT