6. (25 points) An asset will have two and only two cash inflows in the future:...

 

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6. (25 points) An asset will have two and only two cash inflows in the future: 10000 dollars at the end of second year and 25000 dollars at the end of tenth year. The annual effective interest rate is 6%. Determine the following: (a) Price of the asset. (b) Macaulay duration of the asset. (c) Modified duration of the asset. (d) Convexity of the asset. (e) If the interest rate changes to 5.9%, estimate the change in asset price using the modified duration. 6. (25 points) An asset will have two and only two cash inflows in the future: 10000 dollars at the end of second year and 25000 dollars at the end of tenth year. The annual effective interest rate is 6%. Determine the following: (a) Price of the asset. (b) Macaulay duration of the asset. (c) Modified duration of the asset. (d) Convexity of the asset. (e) If the interest rate changes to 5.9%, estimate the change in asset price using the modified duration.