Explain why an FRA is equivalent to the exchange of a floating rate of interest for a

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Explain why an FRA is equivalent to the exchange of a floating rate of interest for a fixed rate of interest. 4.22, A 5-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the end of each year.

(a) What is the bond's price?

(b) What is the bond's duration?

(e) Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield.

(d) Recalculate the bond's price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c).

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Options Futures And Other Derivatives

ISBN: 9780131499089

6th Edition

Authors: John Hull

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Question Posted: Oct 19, 2024 06:00 AM

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Explain why an FRA is equivalent to the exchange of a floating rate of interest for a

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Options Futures And Other Derivatives

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