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Find the duration of a bond with a set- exceItlement date of May 27, 2020, and maturity

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Find the duration of a bond with a set- exceItlement date of May 27, 2020, and maturity date November 15, 2031. The coupon rate of the bond is 7%, and the bond pays coupons semi-annually. The bond is selling at a bond-equivalent yield to maturity of 8%. You can use Spreadsheet 16.2, available in Connect or through your course instructor.

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The maturity of the 30year bond will fall to 25 years and its yield is forecast to be 8 Therefore th...View the full answer


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Investments

Investments

ISBN: 9781259271939

9th Canadian Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus, Lorne Switzer, Maureen Stapleton, Dana Boyko, Christine Panasian

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Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

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