Answered step by step
Verified Expert Solution
Question
1 Approved Answer
2. Throughout this question we will focus on the characteristics of a long term bond with constant coupon payments. This security will be used
2. Throughout this question we will focus on the characteristics of a long term bond with constant coupon payments. This security will be used in all three parts that follow. Part a. When the continuously compounded yield on a 1 year zero coupon bond is 5.02%, this long term security is worth $49.5883. When the continuously compounded yield on a 1 year zero coupon bond is 4.98%, this long term security is worth $49.9866. What is the approximate dollar delta for this long term security when the continuously compounded yield on a 1 year zero is 5.00%? Part b. When the continuously compounded yield on a 1 year zero coupon bond is 5.02%, this long term security is worth $49.5883. When the continuously compounded yield on a 1 year zero coupon bond is 5.06%, this long term security is worth $49.1932. What is the approximate dollar delta for this long term security when the continuously compounded yield on a 1 year zero is 5.04%? Part c. Based on the information in Parts a and b above, what is the approximate gamma value for this long term security when the continuously compounded yield on a 1 year zero is 5.02%?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started