Consider the following: Fixed-rate Bond Fixed-rate Note Price 107.18 Yield to maturity 5.00% Periods to maturity 18 Modified duration 6.9848 a. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate not Show your work. 100.00 5.00% 8 3.5851 b. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate bon Show your work. c. Which of the two fixed-rate securities are more sensitive to increases interest rates? Why?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Consider the following:
Price
Yield to maturity
Periods to maturity
Modified duration
Fixed-rate Bond Fixed-rate Note
107.18
5.00%
18
6.9848
100.00
5.00%
8
3.5851
a. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate note.
Show your work.
b. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate bond.
Show your work.
c. Which of the two fixed-rate securities are more sensitive to increases interest rates? Why?
d. What would be the most appropriate course of action to take given interest rates are expected to rise?
Explain carefully.
Transcribed Image Text:Consider the following: Price Yield to maturity Periods to maturity Modified duration Fixed-rate Bond Fixed-rate Note 107.18 5.00% 18 6.9848 100.00 5.00% 8 3.5851 a. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate note. Show your work. b. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate bond. Show your work. c. Which of the two fixed-rate securities are more sensitive to increases interest rates? Why? d. What would be the most appropriate course of action to take given interest rates are expected to rise? Explain carefully.
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