Question
1. Suppose todays 10-year rate is 9 percent. Todays 4-year rate is 7 percent. Estimate the 6-year forward rate in four years if the 10-year
1. Suppose todays 10-year rate is 9 percent. Todays 4-year rate is 7 percent. Estimate the 6-year forward rate in four years if the 10-year rate has a .3 percent liquidity premium.
- Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent.
- Find the modified duration. (6 points)
- Refer to part a. If the interest changes by 25 basis points, what is the exact change in price? (4 points)
- Refer to part b. If the interest changes by 25 basis points, what is the approximate change in price? (4 points)
Consider a 30-year corporate bond paying 8 percent semi-annual coupon. The current yield to maturity is 10 percent. Find the approximate bonds modified duration by using changes in the interest rate up and down by 5 basis points.
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Contemporary Engineering Economics
Authors: Chan S. Park
5th edition
136118488, 978-8120342095, 8120342097, 978-0136118480
