FIN 131 - Suppose today’s 10-year rate is 9 percent
Question # 00536749
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Updated on: 05/30/2017 02:02 AM Due on: 05/30/2017
1. Suppose today’s 10-year rate is 9 percent. Today’s 4-year rate is 7 percent. Estimate the 6-year forward rate in four years if the 10-year rate has a .3 percent liquidity premium.
- Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent.
- Find the modified duration. (6 points)
- Refer to part a. If the interest changes by 25 basis points, what is the exact change in price? (4 points)
- Refer to part b. If the interest changes by 25 basis points, what is the approximate change in price? (4 points)
Consider a 30-year corporate bond paying 8 percent semi-annual coupon. The current yield to maturity is 10 percent. Find the approximate bond’s modified duration by using changes in the interest rate up and down by 5 basis points.
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Solution: FIN 131 - Suppose today’s 10-year rate is 9 percent