You hold a bond with a duration of 17. Its yield is 6% while the cash (one-year) rate is 4%. You expect yields to move down by 10 basis points over the year.
a. Give a rough estimate of your expected return.
b. What is the risk premium on this bond?

Question

Quizplus · Accepted Answer

The Answer of You hold a bond with a duration of 17. Its yield is 6% while the cash (one-year) rate is 4%. You expect yields to move down by 10 basis points over the year.
a. Give a rough estimate of your expected return.
b. What is the risk premium on this bond?

You Hold a Bond with a Duration of 17