1.Consider a security with a face value of $100,000 to be repaid at maturity. The maturity of the security is 1.5 years. The coupon rate is 7% p.a. and coupon payments are made semi-annually. The current market rate is 12% p.a. What is the security’s duration ? 2.Consider a bond with a face value of $100 and an annual coupon of 12%. Current market rates are 15% p.a. What is the change in price of the bond if current market rates increase by 1% and the remaining time to maturity is one year?
1.Consider a security with a face value of $100,000 to be repaid at maturity. The maturity of the security is 1.5 years. The coupon rate is 7% p.a. and coupon payments are made semi-annually. The current market rate is 12% p.a. What is the security’s duration ?
2.Consider a bond with a face value of $100 and an annual coupon of 12%. Current market rates are 15% p.a. What is the change in price of the bond if current market rates increase by 1% and the remaining time to maturity is one year? Use duration model and round to two decimals.
Use duration model and round your final answer to 2 decimal places.E.g. if the final answer is -5.8312%, type -5.83 in the answer box, if the final answer is 5.8312%, type 5.83 in theanswer box.(Do not type the percentage sign).Type -0.87 in the answer box, not -0.0087
3.If a bank wants to lengthen its asset duration, what type of risk is the bank concerned about?
A.The risk of rising interest rates.
B.Foreign exchange rate risk.
C.The risk of falling interest rates.
D.Off balance sheet risk
4.Why are
A.Because the average maturities of their assets are longer than those of banks/credit unions.
B.Because the average maturities of their assets are shorter than those of banks/credit unions.
C.They are not.
D.Because they are not specialised in credit risk management.
18.Assume an FI issues a security with a face value of $1000 and a promised coupon payment of 12%. Which of the following statements is true for this scenario?
A.The FI benefits from falling interest rates, as it now has to pay less in coupon payments.
B.The FI does not benefit from falling interest rates as the value of the security increases.
C.The FI does not benefit from rising interest rates, as it now has to pay more in coupon payments.
D.The FI benefits from falling interest rates as the value of the security increases.
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