Question

Sun Bank has six-year zero coupon bonds with a total face value of $20 million. The current market yield on the bonds us 10%.

A) what is the modified duration of these bonds?

B) what is the price volatility if the max potential adverse move
in yields is estimated at 20 basis points?

C) what is the daily earnings at risk of this bond portfolio?

d) what is the 10-day VAR assuming the daily returns are
independently distributed?

Answer #1

There are two bonds in a portfolio. One is a 5-year zero-coupon
bond with a face value of $5,000, the other is a 10-year
zero-coupon bond with a face value of $10,000. The Macaulay
Duration of the portfolio is 7.89, the Modified Duration of the
portfolio is 7.3015. If the price of the 10-year bond is $3,999,
what is the answer that is closest to the yield to maturity of the
5-year bond

A bond has a 25-year maturity, 10% coupon, 10% yields, $1000
face value, a duration of 10 years and a convexity if 135.5.
Calculate the new value of the bond (in $), based on modified
duration and convexity, if interest rates were to fall by 125 basis
points.

A bond has a 25-year maturity, 10% coupon, 10% yields, $1000
face value, a duration of 10 years and a convexity if 135.5.
Calculate the new value of the bond (in $), based on modified
duration and convexity, if interest rates were to fall by 125 basis
points.
Please show the working/formulas if done in excel.

A bank has a $2 million market value position in a 6-year, zero
coupon bond. The bond is yielding 8%. The mean change in the daily
yields of the 6-year, zero coupon bond has been 2 basis points over
the past year with a standard deviation of 10 basis points. Using
these data and assuming the yield changes are normally
distributed:
(a) What is the highest yield change expected if a 99 percent
confidence level is required?
(b) What is...

Suppose a 6-year zero-coupon bond with a face value of $100 trades
at $76.235. If the yield increases by 125 basis points, what is the
magnitude of the error between the exact new bond price and the
first-order approximation of the new bond price using the Modified
Duration?

Consider a zero-coupon bond with $100 face value that matures in
seven years and has a yield of 7%.
i) What is the price when we assume that the (discrete)
compounding frequency is semiannual?
ii) What is the bond’s modified duration?
iii) Use the modified duration to find the approximate changes
in price if the bond yield rises by 10, 20, 50, 100 and 200 basis
points.
iv) evaluate the same bond price if rates changes by -200 bps,
-100...

MLK Bank has an asset portfolio that consists of $100 million of
30-year bonds with 8 percent coupon rate (coupons are paid
annually) and $1,000 face value selling at par.
a) What will be the bonds’ new prices if market yields change
immediately by ± 0.05 percent? What will be the new prices if
market yields change immediately by ± 1.00 percent?
b) The duration of these bonds is 12.1608 years. What are the
predicted new bond prices in each...

An FI has a $100 million portfolio of six-year Eurodollar
bonds that have an 8 percent coupon. The bonds are trading at par
and have a duration of five years. The FI wishes to hedge the
portfolio with T-bond options that have a delta of –0.625. The
underlying long-term Treasury bonds for the option have a duration
of 10.1 years and trade at a market value of $96,157 per $100,000
of par value. Each put option has a premium of...

10.
Assume you have a portfolio comprising 5 zero-coupon bonds that
have 2 years to maturity and 6 zero-coupon bond with a maturity of
20 years. Assuming semi-annual compounding and that all bonds have
a face value of 100 and that the yield curve is flat at 5% pa, what
is the modified duration of this portfolio?
Group of answer choices
None of the answers provided are correct
7.752
13.711
10.732
7.609

McIntire Corp. is considering the issue of $1,000 face value, 20
year, 9 percent coupon bonds. The bonds will make coupon payments
on a semi-annual basis. It observes that bonds of Barrett Company
are trading at $1079.31, have the same maturity date and pay an
annual coupon of 10 percent. If the two bonds are expected to be
similar in risk, what price will a bond of McIntire Corp. sell
for?

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