1 in order to immunize ie hedge a bond portfolio with, Ask an Expert

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1. In order to immunize, i.e. hedge a bond portfolio with respect to sizable shifts of the yield curve one must...

A. Select one interest rate sensitive security and find a quantity that must be traded such that the total duration of the hedged portfolio is zero

B. Select two interest rate sensitive security and find a quantity that must be traded such that the total duration and convexity of the hedged portfolio is zero.

C. Select two interest rate sensitive security and find a quantity that must be traded such that the total duration and convexity of the hedged portfolio is minus infinity.

D. Select one interest rate sensitive security and find a quantity that must be traded such that the total convexity of the hedged portfolio is zero.

2. A) What is the price value of a bond with a face value of $100 that will mature in 18 months and pays a coupon of 8% per annum (coupons are prepaid semiannually) given the yield is 6.3%

B) What is the bond's duration?

C) Use the duration to calculate the effect on the bond's price of an increase of 20 basis ppoints in its yield.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92874088

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