Question

"The second derivative of the bond price with respect to the yield is the rate of...

"The second derivative of the bond price with respect to the yield is the rate of change of the slope of the tangent line that is tangent to the curve on the bond price-yield map."

True or false?

Homework Answers

Answer #1
  • true. The bond curve is a function of bond price and bond yield . If bonds duration increases as yield increases, the shape of the bond will be concave. If yield increases (2% to 5%), the price falls ($100 to $80) .therefore, it will be negative sloping .Higher the coupon rate the lower the bonds convexity.
  • The first derivative is the slope of the Bond price-yield curve which is a tangent to the bond curve. It is the change in the Price per unit of yield. Also called as modified duration. MOD DUR = %age change in price / %age change in yield. MOD DUR=
  • Convexity is the rate of change of the modified duration. Therefore it is the rate of change of price per unit of yield with respect to yield. Convexity = .
  • Hence,The second derivate of the bond price with respect to the yield is the rate of change of slope of the tangent line that is tangent to the curve on the bond price yield map.
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
True or false. Discuss why the answer is true or correct the statement if its false....
True or false. Discuss why the answer is true or correct the statement if its false. The derivative ?′(?) is the instantaneous rate of change of ?(?) with respect to x when ? = ? (pg. 79). This means that the instantaneous rate of change is also the slope of the tangent line to ?(?) at the point (?, ?(?)) True or false. Discuss why the answer is true or correct the statement if its false. Analogy: The instantaneous rate...
Q9 The slope of supply curve measures: the change in quantity supplied with respect to an...
Q9 The slope of supply curve measures: the change in quantity supplied with respect to an incremental change in price of the product a) True b) False 10. The market supply function and an individual firm's supply function are expected to have same slope when there are many firms producing the same product a) True b) False
If the coupon rate is equal to the yield to maturity on a bond, then the...
If the coupon rate is equal to the yield to maturity on a bond, then the price of the bond is always equal to the par value. Is this statement true or false? Explain and support your answer with an example.
When the discount rate or yield to maturity is lower than the coupon rate the bond...
When the discount rate or yield to maturity is lower than the coupon rate the bond price is less than its par value. a. True b. False
Duration times the reinvestment rate will give the approximate change in bond price for a 1%...
Duration times the reinvestment rate will give the approximate change in bond price for a 1% change in interest rates. A. True B. False It is possible that a bond with a shorter maturity than another bond may actually have a longer duration and be more sensitive to interest rate changes. A. True B. False One of the benefits of zero-coupon bonds is that they lock in a compound rate of return (or reinvestment rate) for the life of the...
1. If the YTM of bond A does not change over time, then bond price does...
1. If the YTM of bond A does not change over time, then bond price does not change. (T/F) 2. now, Bond B is discount bond. Bond B's YTM is lower than current yield. (T/F) 3. now, current yield of bond C is 9%, YTM is 10%. Then the coupon rate of bond C is higher than 9%. (T/F) if true, explain why if false, explain using example.
The first-order derivative of a function of the form y=f(x) evaluated at x=2 is: a. The...
The first-order derivative of a function of the form y=f(x) evaluated at x=2 is: a. The rate of change [Delta_y/Delta_x], where Delta_x=3-2 and Delta_y=f(3)-f(2). b. The slope of the line that is tangent to y=f(x) at the point (2,f(2)) in the (x,y) Cartesian space. c. The slope of the line that is tangent to y=f’(x) at the point (2,f’(2)) in the (x,y’) Cartesian space. d. None of the above.
Use the “YIELD” function in Excel to find the yield to maturity of a bond with...
Use the “YIELD” function in Excel to find the yield to maturity of a bond with the following characteristics. The yield to maturity on this bond is over 7%. Settlement 5/17/2018 Maturity 5/17/2028 Rate 5% Price 90 Redemption 100 Frequency 2 Basis 0 TRUE OR FALSE
1. What is the derivative of f(x) = cosx/sinx 2. What is the derivative of f(x)...
1. What is the derivative of f(x) = cosx/sinx 2. What is the derivative of f(x) = cos^-1 (3x) 3. What is the second derivative of tanx/secx 4. True or False: If f'(x) = 2^x, then a possible equation for f is f(x) = 2^x +3 5. True or False: The equation x^2 + y^2 = 100 is an implicit curve
Sarah just used $98.71 purchased a Treasury bond. Assume that the yield rate for this bond...
Sarah just used $98.71 purchased a Treasury bond. Assume that the yield rate for this bond is j2 =4.43% p.a. and the duration of this bond is 3.17 years. Without actually calculating the new price for this bond, use the bond price and the duration value to estimate (use the price sensitivity formula) the change in price of this bond that would result from an increase in yield rate (j2) of 15 basis points. Round your answer to four decimal...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT