Bonds and Interest Rate Sensitivity Assignment | Homework For You
May 29th, 2020
Using excel, illustrate and check the following observations on bonds and interest rate sensitivity.
1. Bond prices and yields are inversely related.
2. An increase in a bond’s yield to maturity results in a smaller price change than a decrease in yield of equal magnitude
3. Prices of long-term bonds tend to be more sensitive to interest rate changes than prices of short-term bonds.
4. The sensitivity of bond prices to changes in yields increases at a decreasing rate as maturity increases (interest rate risk is less than proportional to bond maturity)
5. Interest rate risk is invesely related to the bond’s coupon rate. Prices of low-coupon bonds are more sensitive to changes in interest rates than prices of high-coupon bonds.
6. The sensitivity of a bond’s price to a change in its yield to maturity is inversely related to the yield to maturity at which the bond is currently selling. Get Finance homework help today
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