Consider a corporate bond with 10 years until maturity, trading at par (M=100,000), with semi-annual yield to maturity 3.5% (the semi-annual coupon rate is also 3.5%). Also consider a Treasury bond with 7 years until maturity, also trading at par (M=100,000), with semi-annual yield to maturity 3% (the semi-annual coupon rate is also 3%). Now assume that the Treasury yield increases to 3.5%, but the corporate yield only increases to 3.75%. Use durations to calculate the change in the net value of the portfolio.
Consider a corporate bond with 10 years until maturity, trading at par (M=100,000), with semi-annual yield to maturity 3.5% (the semi-annual coupon rate is also 3.5%). Also consider a Treasury bond with 7 years until maturity, also trading at par (M=100,000), with semi-annual yield to maturity 3% (the semi-annual coupon rate is also 3%). Now assume that the Treasury yield increases to 3.5%, but the corporate yield only increases to 3.75%. Use durations to calculate the change in the net value of the portfolio.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 12P: Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may...
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Consider a corporate bond with 10 years until maturity, trading at par (M=100,000), with semi-annual yield to maturity 3.5% (the semi-annual coupon rate is also 3.5%). Also consider a Treasury bond with 7 years until maturity, also trading at par (M=100,000), with semi-annual yield to maturity 3% (the semi-annual coupon rate is also 3%).
Now assume that the Treasury yield increases to 3.5%, but the corporate yield only increases to 3.75%. Use durations to calculate the change in the net value of the portfolio.
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