concept of bond price elasticity
Question 1 (300)words
Question 2 (300)words
Question 3 (300)words
Question 4 (475)words
Ensure you clearly define the underlined words and provide examples/graphs where possible.
Explain the concept of bond price elasticity. Would bond price elasticity suggest a higher price sensitivity for zero-coupon bonds or high-coupon bonds that are offering the same yield to maturity? Why? What does this suggest about the market value volatility of mutual funds containing zero-coupon Treasury bonds versus high-coupon Treasury bonds?
How would a financial institution with a large bond portfolio be affected by falling interest rates? Would it be affected more than a financial institution with a greater concentration of bonds (and fewer short-term securities)? Explain.
Describe how bond convexity affects the theoretical linear price-yield relationship of bonds. What are the implications of bond convexity for estimating changes in bond prices?
a A zero-coupon bond with a par-value of $1,000 matures in 10 years. At what price would this bond provide a yield to maturity that matches the current market rate of 8 per cent?
b What happens to the price of this bond if interest rates fall to 6 per cent?
c Given the above changes in the price of the bond and the interest rate, calculate the bond price elasticity?
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.