1.Calculate the duration of a 6%, $1000 par value bond maturing in 4 years if the yield to maturity is 9% and interest is paid semiannually.

2. If the yield of the bond in part (a) decreases by 50 basis point, what is the new price based on the duration? What is the actual price? Why does the actual price differ from the duration-estimated price?

3. Assume you purchase a 8-year $1000 par value bond, with a coupon of 10% compounding annually and yield of 9%. Immediately after you purchase the bond, the yield fell to 7% and remain at that level to maturity. Calculate the realized horizon yield, if you hold the bond for 5 years and then sell.

Answer rating: 100% (QA)

solution 1 The duration of a bond can be calculated using the below formula Duration 1 yi n yi 1 1 yi n n t Where ytm Yield to maturity n Number of coupon payments per year t Number of years to maturi... View the full answer