A pension fund manager is holding a 10-year 10% coupon bond in the portfolio and the interest rate is 10%. What loss would the fund be exposed to if the interest rate rises to 11% tomorrow? However, this manager can have the option to switch to a 10-year 20% coupon bond. Would he switch to this bond in terms of the interest - rate risk?

A pension fund manager is holding a 10-year 10% coupon bond in the portfolio and the interest rate is 10%. What loss would the fund be exposed to if the interest rate rises to 11% tomorrow? However, this manager can have the option to switch to a 10-year 20% coupon bond. Would he switch to this bond in terms of the interest - rate risk?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 8P

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