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Suppose Aalbond experiences a rash of mortgags prepayments, reducing the size of the mortage portfolio from 1 5 0 million to 1 0 0 million
Suppose Aalbond experiences a rash of mortgags prepayments, reducing the size of the mortage portfolio from million to million and increases cash resevres to million. What is the duration of Aalbonds equity now? if the interest rate are currently but fall to estimate approximate change in the value of Aalbond's equity
Suppose that after the prepayments in part b but before a change in interest rates. aalbond considers managing its risk by selling mortgages andor buying year Treasury bondszerocoupon bonds How many should the firm buy or sell to eliminate its current interest rate risk?
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Step: 1
To calculate the duration of Aalbonds equity after the prepayments we need to first understand the concept of duration Duration is a measure of a bond...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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