Given your duration and convexity calculations in Question 14, answer the following: a. Which bond has the
Question:
Given your duration and convexity calculations in Question 14, answer the following:
a. Which bond has the greatest price sensitivity to interest rate changes?
b. For an annualized 1% decrease in rates, what would be the approximate percentage change in the prices of Bond d and Bond e?
c. Which bond has the greatest asymmetrical capital gain and capital loss feature?
d. If you were a speculator and expected yields to decrease in the near future by the same amount across all maturities (a parallel downward shift in the yield curve), which bond would you select?
e. If you were a bond portfolio manager and expected yields to increase in the near future by the same amount across all maturities (a parallel upward shift in the yield curve), which bond would you select?
f. Comment on the relation between maturity and a bond’s price sensitivity to interest rate changes.
g. Comment on the relation between coupon rate and a bond’s price sensitivity to interest rate changes.
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