Discuss About Duration Formula For Impact Of Change In Interest Rates On Value Of A Bond
$9.00$5.00762 reads
Question
A bank has a portfolio of residential fixed interest mortgage bonds (bonds secured on residential mortgages) with a market valuation of €3mn, and with a modified duration of D = 7 years.
- State the duration formula describing the impact of a change of interest rates (Δi) on the value of this bond portfolio (P). Using this formula to estimate the impact of a rise of interest rates of 100 basis points on the value of this holding, in % and in €?
- Explaining your answers, provide two reasons why the actual impact might be different than this simple calculation.
- Briefly discuss the pros and cons of using a Value at Risk calculation, instead of duration, to describe the market risk of this portfolio of residential fixed interest mortgage bonds.
Summary
The question belongs to Finance and it discusses about duration formula describing impact of change in interest rates on the value of a bond portfolio.
Total Word Count 615
Related Solutions
Calculate The Unit Cost of ComputersUse Of Cash Flow Statement For Performance AnalysisFinance Objective Questions - Cash Conversion Cycle Greater Than how to calculate a company’s free cash flowsBest Measures For Determining Profit Of A FirmDifference Between Government Issued Bonds And Public Company Iss
Recently Uploaded Solutions
Write an Essay on the Importance of Public RelationsWrite an essay on the positive impact of shareholder power on bonWrite An Essay On What You Want From Work And How To Achieve ItWrite an essay/report on Marketing Mix OrientationWrite an interview structure about poultry litter convert to bio Write Article Reflection On The Article “Improving Teaching And
Most Downloaded Solutions