Question: As part of your answer to problem 2, you computed the price of the bond [column (4)]. This is the same as the PV of

As part of your answer to problem 2, you computed the price of the bond [column (4)]. This is the same as the PV of cash flows in column (4).
a. Recompute the price of a bond based on a 11 percent (market rate of interest).
b. What is the percentage change in the price of the bond as interest rates decline by 2 percent from 13 percent to 11 percent?
c. Approximate this same value by multiplying the duration computed in problem 2 times the change in interest rates (2 percent). The answer in part c should come reasonably close to the answer in part b. However, they will not be exactly the same.

Step by Step Solution

★★★★★

3.45 Rating (177 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Year t Cash Flow CF PV Factor At 11 PV of Cash Flow ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

538-B-A-I (6911).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

a. Compute the duration for the following data. Use a discount rate of 13 percent. b. Explain why the answer to part a is higher than the answer to problem 2. c. If in part a the discount rate were...

Assume you buy a 20-year, $1,000 par value zero-coupon bond that provides a 10 percent yield. Almost immediately after you buy the bond, yields go down to 8 percent. a. What will be your gain on the...

Suggest two types of strategies to reduce or neutralize the impact of currency fluctuations on portfolio returns.

all has to be done in excel spreadsheet. please help!!! I only need help with the first problem. You can screenshot work on excel is explain in word document. FIN 320 Principles offre Chapter 7: Bond...

Answer by excel please. Thank you. Problem #3: A 3 year bond has semiannual coupons of 14% per annum. The continuously compounding yield is 20%. The bond has a face value of $200. You will be pricing...

You have a gathered data on a series of ten different $1,000 par value Treasury bonds maturing at different times.All of these bonds pay interest semiannually, and all of them have the same annual...

Part 1: Read the following information JIN Corporation is about to make an investment. Among many potential projects, there is one very profitable. Before the company makes decision, you are asked to...

Required information Problem 9-7B Calculate the issue price of a bond and prepare amortization schedules (LO9-5, 9-7) [The following information applies to the questions displayed below.] Christmas...

Hello, I'm looking for some help with the attached questions. I'd like to be able to do these questions in Excel exclusively. Can you please help me figure out the appropriate Excel functions to use...

Can someone help me answering these questions on bonds, see the attach exercise 2016 Spring2 Financial Concepts Week4 Exercise7 Bond Pricing Student Name: Instructions Leave all answers in TWO...

a) Who is responsible for the preparation and integrity of the financial statements? b) Does the company maintain a system of internal controls? Why? c) Does the company have an audit committee?...

Show that the sum of the first n even positive integers is n + n2, using formulas in this section.

Outline a procedure for determining the marketing costs for a concern manufacturing two products. This organization uses national advertising and assigns salespersons to definite territories for...

27. Using the Web, review one of the products listed below. What are the main features and functions of the software? In what companies has the database management system (DBMS) been implemented, and...

DaimlerChrysler disclosed the following information relating to its long-term debt in its 2008 annual report: 5.18% notes/bonds 5.63% commercial paper 5.72% liabilities to financial institutions...

The city council of Wheeler, Nevada, is faced with an important decision: whether or not to rezone a parcel of property and allow ChemStor, Inc., to purchase the land and build a chemical waste...

How can we deal with uncertainties involved in capital budgeting?

Exercise 3-3 Schedules of Cost of Goods Manufactured and Cost of Goods Sold [LO3-3] Primare Corporation has provided the following data concerning last month's manufacturing operations, Purchases of...

Erkkila Inc. reports that at an activity level of 6,800 machine-hours in a month, its total variable inspection cost is $426,530 and its total fixed inspection cost is $197,309. What would be the...

Exercise 13-8 (Static) Volume Trade-Off Decisions [LO13-5, LO13-6] Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of...