Q1 PT.1

Which of the following about duration is not true?

a) Duration overestimates the bond value loss if interest rate increases.

b) Duration under-estimates the bond value gain if interest rate decreases.

c) Duration works best if interest rate change is small.

d) Duration of a zero-coupon bond is its time-to-maturity.

e) Duration can be computed from the second derivative of the bond pricing equation wrt the YTM.

PT.2

Find the price of a forward contract with maturity of 2 (T=2) years. The underlying asset is a 2 year (T =4) annual-coupon bond with coupon rate 2%. You are given the following term structure: R(0, 1) = 2%, R(0, 2) = 2.5%, R(0, 3) = 2.9%, and R(0, 4) = 3.2%.

a) $96.2737

b) $100.0510

c) $94.4238

d) $108.5004

PT.3

Question 9

The one-year zero-coupon bond with face value of $100 is priced at $96 and the two-year zero-coupon bond with face value of $100 is priced at $90. What is the price of a two-year bond with face value of $1000 that pays a $150 coupon annually?

a) $1179

b) $1170

c) $1169

d) $1185

Explanations please!