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P1.T4.417. Interest rate risk

Nicole Seaman

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417.1. Consider a 1.5 year bond that pays a 9.0% semi-annual coupon. Under the following spot/forward rate curves, the bond's price is $110.22, as follows:

As the rates are expressed with semi-annual compounding, which is nearest to the bond's (modified) duration?

a. 1.256
b. 1.372
c. 1.425
d. 1.497

417.2. A zero-coupon bond with a 20-year maturity has a face value of $1,000 when the yield curve is flat at a certain per annum rate with continuous compounding. If the yield increases by 80 basis points (0.80%), which is nearest to the estimated decrease in the bond price in percentage terms?

a. -14.72%
b. -15.33%
c. -16.00%
d. Need an actual yield (estimate varies by yield)

417.3. Which is nearest to, respectively, the effective duration and effective convexity of a 15-year bond that pays a 9.0% semi-annual compound and yields 12.0% per annum with semi-annual compounding?

a. 7.3 years and 81.0 years^2
b. 9.4 years and 65.0 years^2
c. 12.0 years and 143.0 years^2
d. 13.8 years and 204.0 years^2

Answers here: