Question
Q4a. Price the pool under interest rate of 5%, 6% and 7%, while assuming the loan will be paid off in 8 years in all
Q4a. Price the pool under interest rate of 5%, 6% and 7%, while assuming the loan will be paid off in 8 years in all three cases.
Q4b. Calculate numerical convexity by comparing upside and downside duration for Q4a pricing.
Q4c. Price the pool under interest rate of 5%, 6% and 7%, while assuming the loan will be paid off in 5 years, 8 years, and 10 years in three cases respectively.
Q4d. Calculate numerical convexity by comparing upside and downside duration for Q4c pricing.
Step by Step Solution
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Step: 1
One If we assume the loan to be paid off for 8 years in the three cases under interest rates of 5 6 and 7 we can calculate the cost of the pool Here w...
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Fixed Income Securities Valuation Risk and Risk Management
Authors: Pietro Veronesi
1st edition
0470109106, 978-0470109106
