Chapter 11, Problem 2WM

Summary Introduction

(a)

To Discuss:

http://www.tipsinc.com/ficalc/calc.tips is to be surfed. The link for the general-purpose bond calculator is to be chosen. The measures such as yield to maturity, modified duration and bond convexity as the bond's price changes are provided by the calculator. Thefollowing values are to be experimented by trying different inputs:

The change in duration and convexity as coupon changes

Introduction:

When specified payments are made by the issuer to the holder for a given period of time due to an obligation created by a security, then that security is known as Bond.The amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond is known as the face value of the bond. The discount rate due to which the present payments from the bond become equal to its price i.e. it is the average rate of return which a holder can expect from a bond, is known as Yield to Maturity.

The changes in duration for percentage change in the yield to maturity anda bond'spriceis stated by Modified Duration.

When a curve is formed due to the association between bond yields and bond prices, its evaluation is known as Convexity.The time taken by the bond to change based on the interest rate changes are also displayed by Convexity.

Convexity is termed as an instrument of risk-management. A bond's exposure to the market risks is measured and managed by Convexity.

The FICALC Fixed Income Securities Calculator is a fixed income calculator. All the functions of the traditional desktop bond calculator can be carried out by it and it works only in the browser.

Summary Introduction

(b)

To Discuss:

http://www.tipsinc.com/ficalc/calc.tips is to be surfed. The link for the general-purpose bond calculator is to be chosen. The measures such as yield to maturity, modified duration and bond convexity as the bond's price changes are provided by the calculator. The following values are to be experimented by trying different inputs:

The change in duration and convexity as maturity increases.

Introduction:

When specified payments are made by the issuer to the holder for a given period of time due to an obligation created by a security, then that security is known as Bond.The amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond is known as the face value of the bond. The discount rate due to which the present payments from the bond become equal to its price i.e. it is the average rate of return which a holder can expect from a bond, is known as Yield to Maturity.

The changes in duration for percentage change in the yield to maturity and a bond's price is stated by Modified Duration.

When a curve is formed due to theassociation between bond yields and bond prices, its evaluation is known as Convexity.The time taken by the bond to change based on the interest rate changes are also displayed by Convexity.

Convexity is termed as an instrument of risk-management. A bond's exposure to the market risks is measured and managed by Convexity.

The FICALC Fixed Income Securities Calculator is a fixed income calculator. All the functions of the traditional desktop bond calculator can be carried out by it and it works only in the browser.

Summary Introduction

(c)

To Discuss:

http://www.tipsinc.com/ficalc/calc.tips is to be surfed. The link for the general-purpose bond calculator is to be chosen. The measures such as yield to maturity, modified duration and bond convexity as the bond's price changes are provided by the calculator. The following values are to be experimented by trying different inputs:

The change in duration and convexity as price increases(holding coupon fixed)

Introduction:

When specified payments are made by the issuer to the holder for a given period of time due to an obligation created by a security, then that security is known as Bond.The amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond is known as the face value of the bond. The discount rate due to which the present payments from the bond become equal to its price i.e. it is the average rate of return which a holder can expect from a bond, is known as Yield to Maturity.

The changes in duration for percentage change in the yield to maturity and a bond's price is stated by Modified Duration.

When a curve is formed due to the association between bond yields and bond prices, its evaluation is known as Convexity.The time taken by the bond to change based on the interest rate changes is also displayed by Convexity.

Convexity is termed as an instrument of risk-management. A bond's exposure to the market risks is measured and managed by Convexity.

The FICALC Fixed Income Securities Calculator is a fixed income calculator. All the functions of the traditional desktop bond calculator can be carried out by it and it works only in the browser.