QUESTION 21 2 points Save Answer Bond Math: Based on the information provided, w

Question

QUESTION 21 2 points Save Answer Bond Math: Based on the information provided, what would the estimated gainv/loss) of the bond be for a rate shock of -100BP and +100BP rate change? Duration = 3.24 Convexity -2.52 Current Book Value of Bond $5 million Current (Base Case) Market Value of Bond - $6 million O-100BP-$1.237,600, +100BP- $963,30o Cy-100BP = $852,325, + 100BP # $453,925 0-100BP " $928,850, +100BP $455,635 -100BP $943 235. +100BP $454.695 -100BP $1,043,200. 1008P-$654 400 100BP # $1,043,200, + 100BP " S654400 2 pointsSave Answer QUESTION 22 100

Explanation / Answer

Duration effect= 3.24

Convexity effect= -2.52

Overall effect= 3.24-2.52= 0.72%

It means if interest rate changes by 1% ,bond price will change by 0.72%

Shock -100 bp

Price will rise by 0.72% of 6000000= 43200

Net Gain = 6000000+43200-5000000=$1043200

Hence correct option is(D)

Shock +100 bp

price will fall by: 43200

Net loss= 6000000-43200-5000000= $956800

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