Consider the following bonds: 3-year zero coupon bond with a face value of £100 (Bond A), a semi-annual 6% coupon bond with a face value of £100 and a maturity of 4 years (Bond B) a semi-annual 5% bond with a maturity of 2 years and a face value of £100 (Bond C). Assume that the required yield is 4% per annum across all maturities. Calculate the prices of all three bonds. Calculate the duration of all three Calculate the convexity of all three If an investor owns one thousand of the 3-year zero coupon bonds, calculate how much of each of the other bonds should be held to make the portfolio immune to small parallel shifts in required yields using the durations and convexities of the
Consider the following bonds: 3-year zero coupon bond with a face value of £100 (Bond A), a semi-annual 6% coupon bond with a face value of £100 and a maturity of 4 years (Bond B) a semi-annual 5% bond with a maturity of 2 years and a face value of £100 (Bond C). Assume that the required yield is 4% per annum across all maturities. Calculate the prices of all three bonds. Calculate the duration of all three Calculate the convexity of all three If an investor owns one thousand of the 3-year zero coupon bonds, calculate how much of each of the other bonds should be held to make the portfolio immune to small parallel shifts in required yields using the durations and convexities of the
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Consider the following bonds:
- 3-year zero coupon bond with a face
value of £100 (Bond A), - a semi-annual 6% coupon bond with a face value of £100 and a maturity of 4 years (Bond B)
- a semi-annual 5% bond with a maturity of 2 years and a face value of £100 (Bond C).
Assume that the required yield is 4% per annum across all maturities.
- Calculate the prices of all three bonds.
- Calculate the duration of all three
- Calculate the convexity of all three
- If an investor owns one thousand of the 3-year zero coupon bonds, calculate how much of each of the other bonds should be held to make the portfolio immune to small parallel shifts in required yields using the durations and convexities of the
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