fixed income: Yields and Prices. Interest-Rate Risk Management

(a) Define the following yield concepts: • Redemption yield • Par yield
• Yield to put
• Yield to worst
(b) Can a zero and an otherwise identical, maturity-matched level-coupon bond ever have the same duration?
(c) A 3M T-bill currently sells for 98:08 (what does this quotation mean?). Calculate its bond equivalent yield.
(d) Calculate the discount yield of the preceding 3M T-bill currently selling for 98:08.
(e) What does convexity measure and how is it used in the assessment of interest rate risk?

Sample Solution