Interest Rate Risk and Money Due

Question 1

Analys of a Portfolio using Macaulay Duration

Answer 1

1. Can be used with Embedded Options
2. Easier to calculate
3. Less correct. Calculate the duration of a portfolio using Cash Flow Yield is more correct

Question 2

Price value of a basis point =

Answer 2

Duration x .0001 (1 basis) x Bonds Value

or

PV1 = Use the Normal YTM

PV2 = Use the YTM * 1.001

Question 3

1.What implies in HIGHER interest RISK? (Price sensitivy)

2. 3 factors that affects Duration or Interest Risk

Answer 3

1. The bond which has HIGHER duration, lower YTM

The sensitivity of a price change is higher . REMEMBER THE P X YTM GRAPH (Convex curve downward slope)

2.Higher coupon rate - Lower Duration
(-) relation

Higher YTM - lower duration,
(-) Relation

Higher Maturity - Higher Duration
(+) Duration

Question 4

Key rate duration is

Answer 4

Change in yield in a single maturity

Question 5

Money Duration

Answer 5

PV Full x Mod Dur

Remembering: Pv full = Price + Interest

Mod Dur = -Dur x △ YTM

Ex. Money duration of 306 Milion.
The parcentage of change in 1% od yield is gonna be 306 x 1% = 3.06 milion

Question 6

Consideration about callable bonds

Answer 6

1. CFs become Unpredictable
2. Reinvestment Risk. The bond will be rebuyed when IR are falling. The invester will need to change the good yiled for lower yield
3. Potencial PRICE 🆙 is limitted. Voce entrou com uma call vendida, se fodeu.

Question 7

Parallel and non-Parallel swift in a curve is when?
What is the condition for effective and Modified duration?

Answer 7

Parallel - Yields change in the same amount across maturities
Non-Parallel - Yields change

Condition is parallel Swift