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Economics

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1. What are the key features of a bond? What is interest rate risk?

2. Which bond has more interest rate risk, an annual payment 1-year bond or a 10-year bond? Why?

3. Discuss and compare the passive bond management and active bond management.

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Explanation & Answer

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Running Head: BOND MANAGEMENT

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BOND MANAGEMENT
Name
Institution

BOND MANAGEMENT

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Features that are constant to every type of a bond involve the following; par/face value
which is the value that the holder will sell it at the very first time. Is also represents the principle
value at which the owner will receive at the time of its maturity. Unlike bond price, it’s constant.
Coupon/yield is the interest rates paid by the bond issuer to its holders, can range from zero rate
to being paid quarterly, semi-annually or annually. Bond issuer is the owner of the bond which
can be either corporate or government; determines the stability of the bond. Maturity is the time
when the bond’s principle gets d...


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