Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for the fixed-rate note in the table. Specifically, he assumes an increase in the level of interest rate of 100 basis points. Using the information in the table, what is the predicted change in the price of the fixed-rate note? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Predicted price change
Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for the fixed-rate note in the table. Specifically, he assumes an increase in the level of interest rate of 100 basis points. Using the information in the table, what is the predicted change in the price of the fixed-rate note? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Predicted price change
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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Question
Ee 364.
Transcribed Image Text:Problem 16-18
Frank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investment Committee, Fred Spice,
is very interested in learning about the management of fixed-income portfolios. Spice has approached Meyers with several questions.
Meyers decides to illustrate fixed-income trading strategies to Spice using a fixed-rate bond and note. Both bonds have semiannual
coupon periods. Unless otherwise stated, all interest rate changes are parallel. The characteristics of these securities are shown in the
following table. He also considers a 9-year floating-rate bond (floater) that pays a floating rate semiannually and is currently yielding
5%.
Characteristics of Fixed-Rate Bond and Fixed-Rate Note
Fixed-Rate
Note
Fixed-Rate
Bond
107.18
5.00%
18
6.9848
100.00
5.00%
Price
Yield to maturity
Time to maturity (years)
Modified duration (years)
8
3.5851
Spice asks Meyers to quantify price changes from changes in interest rates. To illustrate, Meyers computes the value change for the
fixed-rate note in the table. Specifically, he assumes an increase in the level of interest rate of 100 basis points. Using the information
in the table, what is the predicted change in the price of the fixed-rate note? (Negative amount should be indicated by a minus sign.
Round your answer to 2 decimal places.)
Predicted price change
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