This is an semiannually bond which is mean one half the yield and pmt, also double the
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Question:
Bond B | Bond A | |
Coupon | 8% | 9% |
Yield to maturity | 8% | 8% |
Maturity (years) | 2 | 5 |
Par | $100.00 | $100.00 |
Price | $100.00 | $104.055 |
(a) Compute the Macaulay durations for the two bonds.
(b) Compute the modified duration for the two bonds.
2. 4. Answer the questions below for bonds A and B.
Bond A | Bond B | |
Coupon | 8% | 9% |
Yield to maturity | 8% | 8% |
Maturity (years) | 2 | 5 |
Par | $100.00 | $100.00 |
Price | $100.00 | $104.055 |
(a) Calculate the actual price of the bonds for a 100-basis-point increase in interest rates.
(b) Without working through calculations, indicate whether the duration of the two bonds would be higher or lower if the yield to maturity is 10% rather than 8%.
3. Consider the following portfolio:
Bond | Market Value | Duration (years) |
W | $13 million | 2 |
X | $27 million | 7 |
Y | $60 million | 8 |
Z | $40 million | 14 |
(a) What is the portfolio's duration? Interpret this number, i.e., what does this number mean?
(b) What is the contribution to portfolio duration for each bond?
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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