Question: Consider two bonds A and B with payments , where . Both bonds have $1,000 face value. Bond A has just been issued, it bears

  1. Consider two bonds A and B with payments , where . Both bonds have $1,000 face value. Bond A has just been issued, it bears coupon rate of 7%, and it will mature in 10 years. Bond B was issued 5 years ago, when interest rates were higher. This bond has $1,000 face value and bears a 13% coupon rate. When issued, this bond had a 15-year maturity, so its remaining maturity is 10 years. The yield to maturity is 7% (see Cell B2). Using the Excel spreadsheet below, estimate the duration of each of the two bonds A (Cell B20) and B (Cell E20), using the mathematical formula of the Macaulay duration measure. Which bond has the longest duration? Show your calculations and interpret your results.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

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

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

1. Silver Gym had two different kinds of business under operation. One kind of business was discontinued and sold at a gain. How should this gain be reported? A. As "extraordinary gain." B. As "gain...

Q:

Consider two bonds, A and B. The coupon rates are 10 percent and the face value are $1,000 for both bonds. Both bonds have annual coupons. Bond A has 20 year to maturity while bond B has 10 years to...

Q:

a) Consider two bonds A and B with payments , where , , , . Bond A has just been issued. Its face value is $1,000, it bears coupon rate of 7%, and it will mature in 10 years. Bond B was issued 5...

Q:

e. Consider two bonds A and B with payments Ct, where t = 1,2, ...,10. Both bonds have $1,000 face value. Bond A has just been issued, it bears coupon rate of 7%, and it will mature in 10 years. Bond...

Q:

. Consider two bonds A and B with payments , where = 1,2, ,10. Both bonds have $1,000 face value. Bond A has just been issued, it bears coupon rate of 7%, and it will mature in 10 years. Bond B was...

Q:

Consider two bonds A and B with payments Ct, where t = 1,2, ...,10. Both bonds have $1,000 face value. Bond A has just been issued, it bears coupon rate of 7%, and it will mature in 10 years. Bond B...

Q:

Consider two bonds A and B with payments , where . Bond A has just been issued. Its face value is $ 1 , 0 0 0 , it bears coupon rate of 7 % , and it will mature in 1 0 years. Bond B was issued 5...

Q:

6. Look at the information in the previous question. What is the modified duration of the bond with the highest duration? (To 2 decimal places). 7 A twenty-year corporate bond matures on June 1,...

Q:

Chapter 7 AND Chapter 9 Problems ( 2 2 points ) ( where applicable, use the time value of money template ) : a . Assume a $ 1 0 0 0 face value bond has a coupon rate of 8 . 5 % , pays interest...

Q:

please explain this in excel with formulas given 4 and 5 both is a 1 whole problem Bookt Formulas Data Review View @su. Home Insert Draw Page Layout Calibri (Body) 12 Copy BI U. 8 Format 137 x fx...

Q:

Verify the determinant formula of Lemma 9.28 for the matrices in Exercises 9.4.1 and 9.4.2. In Exercises 9.4.1 Find the exponentials e'A of the following 2x2 matrices: (a) (b) (c) (d) (e) (f) In...

Q:

Make a picture collage showing the ideal or desired Fair Society. Demonstrate 5 or more ideas or concepts discussed social justice. Guide Questions: 1. Explain the picture collage you made. 2. As a...

Q:

Financial statement users typically begin their assessment of permanent earnings with: Multiple Choice gross profit. net income. sales revenue. income from continuing operations. 1 9 of 3 4 Next

Q:

import java.util. * ; public class Test { public static void main ( String [ ] args ) { Set set 1 = new HashSet ( ) ; set 1 . add ( " red " ) ; Set set 2 = set 1 . clone ( ) ; }