Suppose the interest rate decreases to 9% as an annual percentage rate. What will happen to the
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Suppose the interest rate decreases to 9% as an annual percentage rate. What will happen to the prices and durations of the two bonds in Spreadsheet 16.1?
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A B C D E F G 1 Time until PV of CF 2 Payment (Discount rate = Column (C) times 3 Period (Years) Cash Flow 5% per period) Weight Column (F) 4 A. 8% coupon bond 1 0.5 40 38.095 0.0395 0.0197 5 2 1.0 40 36.281 0.0376 0.0376 6 3 1.5 40 34.554 0.0358 0.0537 7 4 2.0 1040 855.611 0.8871 1.7741 8 Sum: 964.540 1.0000 1.8852 9 10 B.Zero-coupon 1 0.5 0 0.000 0.0000 0.0000 11 12 13 14 Sum: 15 16 Semiannual Int rate: 0.05 17 234 1.0 0 0.000 0.0000 0.0000 1.5 0 0.000 0.0000 0.0000 2.0 1000 822.702 1.0000 2.0000 822.702 1.0000 2.0000 18 "Weight = Present value of each payment (column E) divided by the bond price. Spreadsheet 16.1 Calculating the duration of two bonds Column sums subject to rounding error.
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ISE Investments
ISBN: 9781260571158
12th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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