Suppose that you are a fixed income portfolio manager at Bourbon Street Capital. You have the following bonds issued by Royal, Inc. and Chartres, LLC in your portfolio and you want to understand the risk profile of your portfolio. Given that both bonds pay semiannual coupons, answer the following questions. (Remember to convert your answer to units of full years.) Royal, Inc. Chartres, LLC. Bond A Bond B 8% 8% 2 Par $100.00 Price $100.00 (a) What is the DV01 (at current prices) for bonds A and B? (b) What are the Macaulay Durations (at current prices) for the two bonds? (c) What are the modified durations for the two bonds? Coupon Yield to maturity Maturity (years) 9% 8% 5 $100.00 $104.055
Suppose that you are a fixed income portfolio manager at Bourbon Street Capital. You have the following bonds issued by Royal, Inc. and Chartres, LLC in your portfolio and you want to understand the risk profile of your portfolio. Given that both bonds pay semiannual coupons, answer the following questions. (Remember to convert your answer to units of full years.) Royal, Inc. Chartres, LLC. Bond A Bond B 8% 8% 2 Par $100.00 Price $100.00 (a) What is the DV01 (at current prices) for bonds A and B? (b) What are the Macaulay Durations (at current prices) for the two bonds? (c) What are the modified durations for the two bonds? Coupon Yield to maturity Maturity (years) 9% 8% 5 $100.00 $104.055
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
Problem 1PS
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Transcribed Image Text:9. Interest Rate Risk.
Suppose that you are a fixed income portfolio manager at Bourbon Street Capital. You have
the following bonds issued by Royal, Inc. and Chartres, LLC in your portfolio and you want
to understand the risk profile of your portfolio. Given that both bonds pay semiannual
coupons, answer the following questions. (Remember to convert your answer to units of full years.)
Coupon
Yield to maturity
Maturity (years)
Royal, Inc. Chartres, LLC.
Bond A
Bond B
9%
8%
5
$100.00
$104.055
8%
8%
2
Par
$100.00
Price
$100.00
(a) What is the DV01 (at current prices) for bonds A and B?
(b) What are the Macaulay Durations (at current prices) for the two bonds?
(c) What are the modified durations for the two bonds?
(d) What is the convexity of the two bonds?
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