IN ALL OF THE FOLLOWING QUESTIONS ASSUME 1. THE PAR VALUE OF THE BOND IS $100...
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IN ALL OF THE FOLLOWING QUESTIONS ASSUME 1. THE PAR VALUE OF THE BOND IS $100 2. COUPON RATES ARE QUOTED ANNUALLY BUT ARE GIVEN SEMI-ANNUALLY 3. DISCOUNT RATES ARE QUOTED ANNUALLY BUT ARE COMPOUNDED SEMI-ANNUALLY Question 1: Durations (20 points) 15 10 5 Maturity (years) b) c) 2% 1.7% 1.8% Yield 1% 2% 0.5% Coupon a) (5 points) Find the Macaulay and Modified durations of the following bonds. Hint: You found the prices of these bonds in HW 5. (10 points) Explain what the Macaulay duration of each bond means. (5 points) What is the estimated price change if yields decrease by .05% (5 bps)? Which bond has the larger predicted price change? Does this make sense, given the modified durations? Why or why not? IN ALL OF THE FOLLOWING QUESTIONS ASSUME 1. THE PAR VALUE OF THE BOND IS $100 2. COUPON RATES ARE QUOTED ANNUALLY BUT ARE GIVEN SEMI-ANNUALLY 3. DISCOUNT RATES ARE QUOTED ANNUALLY BUT ARE COMPOUNDED SEMI-ANNUALLY Question 1: Durations (20 points) 15 10 5 Maturity (years) b) c) 2% 1.7% 1.8% Yield 1% 2% 0.5% Coupon a) (5 points) Find the Macaulay and Modified durations of the following bonds. Hint: You found the prices of these bonds in HW 5. (10 points) Explain what the Macaulay duration of each bond means. (5 points) What is the estimated price change if yields decrease by .05% (5 bps)? Which bond has the larger predicted price change? Does this make sense, given the modified durations? Why or why not?
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Answer a To find the Macaulay and Modified durations of the bonds we need to use the following formulas Macaulay Duration C t 1 y2t Bond Price Modified Duration Macaulay Duration 1 y2 Where C Coupon p... View the full answer
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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