An investor owns a bond with a modified duration of 0,5. At the moment YTM for...

An investor owns a bond with a modified duration of 0,5. At the moment YTM for that bond is equal to 3,28%. What will be the magnitude of bond price change if YTM for the bond changes to 3,58%. Explain how can you improve accuracy of estimation of a bond price change resulting from the change of market interest rates

Expert Solution

Change in Price = -Modified Duration (Change in YTM)

Change in Price = -0.50(0.0030)

Change in Price = -0.15%

jeff jeffy answered 2 years ago

An investment fund owns $15,000,000 principal of a corporate bond whose modified duration is -8.3 (years)....

An investment fund owns $15,000,000 principal of a corporate bond whose modified duration is -8.3 (years). The bond's current percentage-of-par price is 108.58% (1.0858). The fund may sell the bond in several weeks as part of a portfolio restructuring, and is worried that bond yields will rise and prices decline. So it decides to hedge its risk using another bond whose modified duration is -9.0 (years), the most liquid bond available. These are the relevant prices today: Target bond: ModDur...

Compute the Macaulay duration and modified duration of a 6%, 25-year bond selling at a yield...

Compute the Macaulay duration and modified duration of a 6%, 25-year bond selling at a yield of 9%. Coupon frequency and compounding frequency are assumed to be semiannual.

What is the modified duration of an 5% bond with 15 years to maturity that is...

What is the modified duration of an 5% bond with 15 years to maturity that is trading at a yield of 8%? Assume that coupon is paid semi-annually. (Keep your answer to 2 decimal places, xx.12.)

Given a 9-year bond with YTM of 4% and a duration of 7.5, what is the...

Given a 9-year bond with YTM of 4% and a duration of 7.5, what is the expected percent price change/return for a 0.05% (5 basis-point/bps) shift up in market yields? Given 1-year ZCB securities with 5.2% yield in GBP and 4.5% yield in EUR, and a spot exchange rate of GBP/EUR at 1.5408, what expected spot ex- change rate in 1-year would result in a break-even between the two instruments? Which bond would be a better investment given a 1Y...

What is meant by duration of a bond security and its significance to bond investor

Anderson bought a bond with a modified duration of 11.20. By approximately what percentage will the...

Anderson bought a bond with a modified duration of 11.20. By approximately what percentage will the bond price change assuming interest rates increase by 90 basis points? a. -11.20% b. -10.08% c. +10.08% d. +11.20%

6. a) What is duration? What is modified duration? &nbsp

6. a) What is duration? What is modified duration? b) What is Macaulay’s duration? c) What is crucial to formulating both active and passive strategies? d) How is immunization of a fully funded plan accomplished? What is a more direct form of immunization? 7. a) Consider an economy where the dominant industry is automobile production for domestic consumption as well as export. Now suppose the auto market is hurt by an increase in the length of...

A manager is holding a $1.8 million bond portfolio with a modified duration of nine years....

A manager is holding a $1.8 million bond portfolio with a modified duration of nine years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 10 years. How many dollars' worth of T-bonds should she sell to minimize the risk of her position? (Enter your answer in dollars not in millions.)

a) Compute the modified duration of a 9% coupon, 4-year corporate bond with a yield to...

a) Compute the modified duration of a 9% coupon, 4-year corporate bond with a yield to maturity of 10%. b) Using the modified duration, If the market yield drops by 25 basis points, there will be a __________% (increase/decrease) in the bond's price.

1)Find the Macaulay duration and the modified duration of a15-year,11.5%corporate bond priced to yield9.5%.According to the...

1)Find the Macaulay duration and the modified duration of a15-year,11.5%corporate bond priced to yield9.5%.According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to10.5%?Using annual compounding, calculate the price of this bond in one year if rates do rise to10.5%.How does this price change compare to that predicted by the modified duration? Explain the difference. 2) An investor is considering the purchase of a(n)6.75%,18-year corporate bond that's being...

Question