Let$$s say you are planning for a big vacation in four years. You estimate this exquisite trip will

cost you $$12,000.$ You plan on investing in bonds to ensure you have the cash on hand when it is

time to finance the trip. Say you decided to purchase a $5-$year $12\%$ coupon bond that currently

yields $8\%$APR. Its Macaulay Duration is $4\mathrm{.}1542$ years.

a$.$ What is this bond$$s Modified Duration?

b$.$ What is the price of $$1000$ in the bond$$s face value today?

c$.$ If the interest remains at $8\%$APR, what is the time$-4-$year value of the coupon

payments $($on $$1000$ of face value$)$ received in years $0$ through $4?$

d$.$ If the interest remains at $8\%$APR, what is the time$-4-$year value of the remaining

bond cash flows $($for $$1000$ of face value$)?$

e$.$ If the interest remains at $8\%$APR, what is the time$-4-$year total value of all expected

cash flows per $$1000$ of face value $($consider coupons, interest from reinvestment of

coupons, and selling price of the bond$)?$

$$ Claire M$.$ Rosenfeld $20223$

f$.$ If the interest remains at $8\%$APR, what is the time$-4-$year total value of all expected

cash flows per $$7544\mathrm{.}44$ of face value $($consider coupons, interest from

reinvestment of coupons, and selling price of the bond$)?$

g$.$ How does the value from part f compare to your trip cost?

h$.$ If tomorrow morning the interest rate on the bond shifts to $10\%$APR, what is the

time$-4-$year value of the coupon payments received in years $0$ through $4?$

i$.$ If tomorrow morning the interest rate on the bond shifts to $10\%$APR, what is the

time$-4-$year value of the remaining bond cash flows?

j$.$ If tomorrow morning the interest rate on the bond shifts to $10\%$APR, what is the

time$-4-$year total value of all expected cash flows $($consider coupons, interest from

reinvestment of coupons, and selling price of the bond$)?$

k$.$ If tomorrow morning the interest rate on the bond shifts to $10\%$APR, what is the

time$-4-$year total value of all expected cash flows per $$7544\mathrm{.}44$ of face value

$($consider coupons, interest from reinvestment of coupons, and selling price of the

bond$)?$

l$.$ How well did this investment strategy manage your interest rate risk?