True or false? Explain.
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True or false? Explain.
1. True or false? Explain.
a. Longer-maturity bonds necessarily have longer durations.
b. The longer a bond’s duration, the lower its volatility.
c. Other things equal, the lower the bond coupon, the higher its volatility.
d. If interest rates rise, bond durations rise also.
2. Calculate the durations and volatilities of securities A, B, and C. Their cash flows are shown below. The interest rate is 8%.
|
Period 1 |
Period 2 |
Period 3 |
|
| A |
40 |
40 |
40 |
| B |
20 |
20 |
120 |
| C |
10 |
10 |
110 |
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