Question

A two-year corporate bond paying 8% interest annually is currently selling at 105 . The principal of $20,000,000 is due at the end of two years. Historically, daily yields on bonds with similar risk characteristics change by 25 basis points. What is the duration of this bond? 1.43 years 1.93 years 1.83 years 2.00 years 1.33 years A two-year corporate bond paying 8% interest annually is currently selling at 105. The principal of $20,000,000 is due at the end of two years. Historically, daily yields on bonds with similar risk characteristics change by 25 basis points. What is the bond's DEAR using duration rounded to 2 decimal points? (round to the nearest dollar) $93,819 $92,593

$89,352
$97,788 $97,428 A two-year corporate bond paying 8% interest annually is currently selling at 105 . The principal of $20,000,000 is due at the end of two years. Historically, daily yields on bonds with similar risk characteristics change by 25 basis points.
What is the 10-day VAR for this bond using DEAR rounded to the nearest dollar? (round to the nearest dollar) $309,233 $308,094 $292,805 $282,556 $296,682

Answer 1

The duration of the bond is 1.83 years and the DEAR is $97,428.

Step-by-step explanation:

The duration of a bond measures its sensitivity to changes in interest rates. Duration can be calculated as the weighted average time until all the bond's cash flows are received. In this case, the bond has a duration of 1.83 years.

The DEAR, or Dollar Duration of a bond, measures the bond's price sensitivity to changes in interest rates. It can be calculated by multiplying the bond's duration by its current price. In this case, the bond's DEAR is $97,428 rounded to the nearest dollar.

The 10-day VAR, or Value at Risk, calculates the potential loss a bondholder may incur over a 10-day period. It can be calculated by multiplying the bond's DEAR by the z-score, which is derived from the bond's historical volatility. Unfortunately, the required historical volatility data is not provided, so the 10-day VAR cannot be determined.