A Bond's Yield Is 5% and the Forward Yield Volatility

question 2

Short Answer

A bond's yield is 5% and the forward yield volatility is quoted as 20%. The modified duration of the bond at the maturity of the option is 6 years. What would the market assume to be the bond forward price volatility? _ _ _ _ _ _

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Definitions:

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.

Board of Governors

The leading body of a central banking system that oversees policy and administration.

Money Supply

The entire amount of finances available in an economy, covering all forms of cash, coins, and the funds in checking and savings accounts, at a precise moment.

Old Currency

Outdated or not in current use money forms, replaced or withdrawn by respective authorities.