Financial Risk Manager Part 1

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Explanation:

The table gives a weighted time sum of 2.6448. Since the bond-equivalent yield is 14.0%, the semiannual yield is 7.0%, so the modified duration is:

D_{mod} = \frac{2.6448}{1.07} \approx 2.471

For a 26 bps drop in yield, $\Delta y = -0.0026$ . The duration-based price change is approximately:

\Delta P \approx -D_{mod} \times P \times \Delta y

\Delta P \approx -2.471 \times 904.67 \times (-0.0026) \approx 5.81

So the bond price is expected to increase by about $5.81.

Correct answer: A) $5.81

Explanation:

The table gives a weighted time sum of 2.6448. Since the bond-equivalent yield is 14.0%, the semiannual yield is 7.0%, so the modified duration is:

D_{mod} = \frac{2.6448}{1.07} \approx 2.471

For a 26 bps drop in yield, $\Delta y = -0.0026$ . The duration-based price change is approximately:

\Delta P \approx -D_{mod} \times P \times \Delta y

\Delta P \approx -2.471 \times 904.67 \times (-0.0026) \approx 5.81

So the bond price is expected to increase by about $5.81.

Correct answer: A) $5.81

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Semi-Annual Period (T)	d.f.	Cash flow		Weight (W)	Time * Weight (T*W)
		FV	PV
0.5	0.935	`$50.00`	`$46.73`	0.052	0.026
1.0	0.873	`$50.00`	`$43.67`	0.048	0.048
1.5	0.816	`$50.00`	`$40.81`	0.045	0.068
2.0	0.763	`$50.00`	`$38.14`	0.042	0.084
2.5	0.713	`$50.00`	`$35.65`	0.039	0.099
3.0	0.666	`$1`,050.00	`$699.66`	0.773	2.320
		`$1`,300.00	`$904.66`9	1.000	2.6448

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MManit

Last updated: April 18, 2026 at 11:32

$5.81

47.6%

$6.00

19.0%

$6.18

14.3%

$7.25

19.0%