A. In a recent trading session, the benchmark 30-year treasury bond’s market price went up $13.94 per $1000 face value to $1027.06, while its yield fell from .07 to .068. The bond’s market price then went up another $12.94 per $1000 face value as the yield fell further to .0665 from .068. Report the answers for the following (using average of the latest two bond prices for duration and average of latest three bond prices for convexity:
1. convexity, using the average of all three market prices of the bond in the denominator formula
2. first modified duration, using average of first two market prices of the bond in the denominator formula
3. second modified duration, using average of second and third prices of the bond
4. the expected rise in bond price if the interest rate were to fall another 20 basis point (.002) from .0665, using the average of two modified durations and convexity
B. Estimate term structure of discount factors, spot rates and forward rates by using
data on five semi-annual coupon paying bonds with $100 face value each: The
bonds, respectively, have 1.25, 5.35, 10.4, 15.15 and 20.2 years to maturity; pay
coupon at annual rates of 9.94, 10.94, 11.94, 12.94, and 13.94 percent of face value; and are
trading at quoted spot market prices in dollars of 103.94, 104.94, 105.94, 106.94 and 107.94. Specify
the discount factor function d(t) by a third degree polynomial with unknown
parameters a, b, and c, as done in class. Using estimated d(t) function, determine spot rate and forward rate functions by assuming half-year compounding. Then write the values of the following based on your estimation.
5. Coefficient of parameter a in first bond price equation.
6. Coefficient of parameter b in first bond price equation.
7. Coefficient of parameter c in first bond price equation.
8. Coefficient of parameter a in second bond price equation.
9. Coefficient of parameter b in second bond price equation.
10.Coefficient of parameter c in second bond price equation.
11.Coefficient of parameter a in third bond price equation.
12.Coefficient of parameter b in third bond price equation.
13.Coefficient of parameter c in third bond price equation.
14.Coefficient of parameter a in fourth bond price equation.
15.Coefficient of parameter b in fourth bond price equation.
16.Coefficient of parameter c in fourth bond price equation.
17.Coefficient of parameter a in fifth bond price equation.
18.Coefficient of parameter b in fifth bond price equation.
19.Coefficient of parameter c in fifth bond price equation.
20.Parameter a.
21.Parameter b.
22.Parameter c.
23.Current price of a dollar at 5th year.
24.Current price of a dollar at 7th year.
25.Current price of a dollar at 10th year.
26.Current price of a dollar at 15th year.
27.Spot rate for term 2 year.
28.Spot rate for term 5 year.
29.Spot rate for term 10 year.
30.Spot rate for term 17 year.
31.Forward rate for half year period 2.5 to 3.0 years.
32.Forward rate for half year period 5.5 to 6.0 years.
33.Forward rate for half year period 10.5 to 11.0 years.
34.Forward rate for half year period 15.5 to 16.0 years.
C. Estimate the 2-year, 5-year, and 10-year key rate durations of a 20-year bond
carrying a coupon of 13.9 percent on face value $100 paid semi-annually. The given
term structure starts with 9.5 percent spot rate of interest at time zero and rises at a
rate of 0.002 (.2%) per half year thereafter. Take a 20 basis point (.002) move in
each key interest rate to calculate the key rate durations by the method done in class and given in textbook. Report answers for the following:
35.Current fair price of the bond with the given term structure.
36.Price change needed to calculate 2-year key rate duration.
37.Price change needed to calculate 5-year key rate duration.
38.Price change needed to calculate 10-year key rate duration.
39.2-year key rate duration.
40.5-year key rate duration.
41.10-year key rate duration.
D. Using the following data on the price of a bond and the corresponding interest
rate (assuming a flat term structure) and regression method, estimate convexity and
duration of the bond:
Price |
Interest Rate |
99 |
0.06 |
100 |
0.057 |
101.5 |
0.052 |
102 |
0.049 |
105 |
0.044 |
106.5 |
0.038 |
108 |
0.033 |
108.5 |
0.031 |
110.1 |
0.028 |
42.Write duration
43.Write convexity
Subject | Business |
Due By (Pacific Time) | 11/17/2014 10:00 am |
Tutor | Rating |
---|---|
pallavi Chat Now! |
out of 1971 reviews More.. |
amosmm Chat Now! |
out of 766 reviews More.. |
PhyzKyd Chat Now! |
out of 1164 reviews More.. |
rajdeep77 Chat Now! |
out of 721 reviews More.. |
sctys Chat Now! |
out of 1600 reviews More.. |
sharadgreen Chat Now! |
out of 770 reviews More.. |
topnotcher Chat Now! |
out of 766 reviews More.. |
XXXIAO Chat Now! |
out of 680 reviews More.. |