Question
Suppose the yield curve is flat at 4%, and you bought 100 4-year, 2% coupon bonds with faces of $1,000, exposing you to IR risk.
Suppose the yield curve is flat at 4%, and you bought 100 4-year, 2% coupon bonds with faces of $1,000, exposing you to IR risk. (a) What's the bond's convexity? (b) What is the approximate price change if yield is 5%? (c) Suppose you have 5 and 7-year zeros available. How would you hedge duration and convexity? (d) What happens to the portfolio if yield goes to 5%?
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Intermediate Financial Management
Authors: Brigham, Daves
10th Edition
978-1439051764, 1111783659, 9780324594690, 1439051763, 9781111783655, 324594690, 978-1111021573
