Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 2. a) (7 points) the discount factors for differen

2. a) (7 points) The discount factors for different maturities (t) are as follows: t...

50.1K

Verified Solution

Question

Finance

image

2. a) (7 points) The discount factors for different maturities (t) are as follows: t (years) Z(0,t) 0.5 0.9480 1 0.9260 1.5 0.8840 2 0.8530 . Calculate the duration and the convexity of a portfolio which consists of all of the following securities: 2 units of 1-year fixed-rate coupon bonds with a coupon rate of 6%, which pay coupons semi-annually, and which have a face value of $100 each; 6 units of 2-year zero-coupon bonds, with a face value of $100 each; 1 unit of a 1.5-year floating-rate bond paying the 6-month semi-annually- compounded spot rate (and no spread) semi-annually, with a face value of $100, which has just been issued. b) (3 points) If the continuously-compounded spot yield curve shifts downwards by 3%-points parallelly, by how many dollars will the value of the portfolio in question a) change approximately? Use the second-order Taylor-approximation (i.e., duration and convexity)

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students