Q29. See we know that D = Duration of the bond & H= Holding period of the bond)
If D-H is positive it means Reinvestment effect is small, price effect is big. Interest rate fall will benefit us since of we pull with less rate, we get a higher price..
But here H is maturity. It means D-H is negative, D is small. It means reinvestment effect is greater. So we assume that we reinvest at YTM, and since reinvestment rate has fallen to 5.5% we will earn less than current 6% return..
Q30. It’s simple bond is trading at par means P0 = 100,
We give a negaitve 25 BP shock. Price increases such that P2 comes to 100.9788
With positive shock of 25BP, P falls, such that P1 = 99.0344
Q29. See we know that D = Duration of the bond & H= Holding period of the bond)
If D-H is positive it means Reinvestment effect is small, price effect is big. Interest rate fall will benefit us since of we pull with less rate, we get a higher price..
But here H is maturity. It means D-H is negative, D is small. It means reinvestment effect is greater. So we assume that we reinvest at YTM, and since reinvestment rate has fallen to 5.5% we will earn less than current 6% return..
Q30. It’s simple bond is trading at par means P0 = 100,
We give a negaitve 25 BP shock. Price increases such that P2 comes to 100.9788
With positive shock of 25BP, P falls, such that P1 = 99.0344
So MD = (P2- P1)/ 2P0(Δytm)
So MD = (100.9788-99.0344)/ 2*100*0.0025 = 3.888
Hope it helps