You own a 4%, 6 year to maturity bond which is selling for 94.871. You are...
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You own a 4%, 6 year to maturity bond which is selling for 94.871. You are concerned that the market rates of interest may increase but up to 2%. a. Calculate the MMD (modified McCauley duration). b. Calculate the approximate change in bond price if rates changed immediately up by 2%. c. Verify with the standard bond calculation. d. If you bought the bond because you had a 6 year time to a capital payment explain what are the advantages and disadvantages of this bond investment to meet your capital outflow in 6 years. You own a 4%, 6 year to maturity bond which is selling for 94.871. You are concerned that the market rates of interest may increase but up to 2%. a. Calculate the MMD (modified McCauley duration). b. Calculate the approximate change in bond price if rates changed immediately up by 2%. c. Verify with the standard bond calculation. d. If you bought the bond because you had a 6 year time to a capital payment explain what are the advantages and disadvantages of this bond investment to meet your capital outflow in 6 years.
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Answer rating: 100% (QA)
Part a Yield of the bond Rate Nper PMT PV FV Rate 6 4 x 100 94871 1000 501 Years T NCF PV501 Duratio... View the full answer
Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
Posted Date:
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