Financial Risk Manager Part 1
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In the context of bond pricing and interest rate risk, consider the following scenario:
The yield curve undergoes a 1% parallel upward shift. Calculate the change in the market prices of two specific bonds under these conditions:
- Bond A: This is a zero-coupon bond with a current market price of USD 900.
- Bond B: This is an annually coupon-paying bond, currently priced at par (USD 1,000).
Both bonds have a modified duration of 3 years and a face value of USD 1,000. How will the market prices of Bond A and Bond B change as a result of the 1% increase in the yield curve?
In the context of bond pricing and interest rate risk, consider the following scenario:
The yield curve undergoes a 1% parallel upward shift. Calculate the change in the market prices of two specific bonds under these conditions:
- Bond A: This is a zero-coupon bond with a current market price of USD 900.
- Bond B: This is an annually coupon-paying bond, currently priced at par (USD 1,000).
Both bonds have a modified duration of 3 years and a face value of USD 1,000. How will the market prices of Bond A and Bond B change as a result of the 1% increase in the yield curve?
Exam-Like
A
Both bond prices will move up by roughly the same amount.
5.7%
B
Both bond prices will move up, but bond B will gain more than bond A
17.1%
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