Question: Part 2 Relation between Interest rate, bond prices and duration (40 marks) (up to 600 words) 1. Bond Ais a coupon bond. It has a

Part 2 Relation between Interest rate, bond prices and duration (40 marks) (up to 600 words) 1. Bond Ais a coupon bond. It has a face value of $100. The coupon rate is 5%, and the market interest rate is 10%. The bond matures in 30 years. Using Excel's functions, calculate the price and duration of bond A. 2. Calculate the bond price (column 3) and duration (column 2) for all yield to maturities given in the below table. 3. Calculate bond price change (column 4) using bond price calculated in column 3 of the table. For example, bond price changes when yield to maturity 13% vs yield to maturity 14%, and so on. 4. Calculate bond price change using duration (column 5) for all yield to maturities given in the table below. 5. Plot yield to maturity on x -axis and duration on y-axis. Is the plot a straight line (linear) or a curve (non-linear)? 6. Plot yield to maturity on x-axis and bond price on y-axis. Is the plot a straight line (linear) or a curve (non-linear)? 7. Plot bond price change calculated in Q(3) and Q(4) on y-axis and yield to maturity on x- axis. 8. Are the bond price changes calculated in Q(3) and Q(4) the same or different. Explain your answer clearly. Yield to | Duration | Bond Price Price change maturity Price change using using Bond | duration in Price in column 2 column 3 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% BHP Dividend history Year 2024 2023 2022 2021 2021 2020 2019 2019 2018 2017 2016 2015 2014 Dividend $ 1.44 1.6 3.5 4 2.02 1.1 1.56 1.1 1.26 0.86 0.28 1.24 1.24

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!

Mini-case 1: Interest Rates, Bond Yields, and Duration CONCEPTS IN THIS CASE simple loans fixed-payment loans coupon bonds present value yield-to-maturity current yield nominal and real interest...

Mini-case 1: Interest Rates, Bond Yields, and Duration concepts in this case simple loans fixed-payment loans coupon bonds present value yield-to-maturity current yield nominal and real interest...

Minicase 1 Interest Rates, Bond Yields, and Duration CONCEPTS IN THIS CASE simple loans fixed-payment loans coupon bonds present value yield-to-maturity current yield nominal and real interest rates...

Need help on Question 1 please. Thanks in advance. Question 1 Interest Rates, Bond Yields, and Duration CONCEPTS IN THIS CASE: simple loans fixed-payment loans coupon bonds present value...

Problem 1 (20 points) Suppose you have the following obligation over the next three years. In years 1 and 2, you will make payments $5,000 and in year 3, you must make a payment of $10,000. Interest...

You must show all work for full credit. Problem 1 (20 points) Suppose you have the following obligation over the next three years. In years 1 and 2, you will make payments $5,000 and in year 3 , you...

a. What will be the total interest earned on the bond over the next four years? b. What will be the face value received at maturity? Given the following projected income stream for Bond #1: c. What...

PLEASE SOLVE QUESTION 3 USING EXCEL ONLY!!! SHOW ALL FOMRULAS USED IN EXCEL 2. The following table shows information about an Amazon.com bond as of July 19, 2017: Amazon.com Bond Information...

17. T F Other variables held constant, there is an inverse relation between bond prices and interest rates is an 18. Red Mountain, Inc. bonds have a face value of $1.000. The bonds carry a 7 percent...

Question 3 Suppose you observe the following market data on debt securities: Security Coupon (p.a.) Yield to maturity (p.a. continuously compounded) 6-month Treasury Bond na. 2.00% 1-year NZ...

In my opinion, Gary Cordner (1995) does the best job of articulating what community policing actually is. Although many people throw around this term, very few people understand what is involved in...

On a rainy day, a friend of yours carefully observes the rain drop motion and proposes a rough estimate of 5 m/s for the terminal speed of the rain drop. Using your knowledge of fluid mechanics, make...

Michael is a 5 0 - year - old investor who has an IRA. He is looking for suitable investments to place in the account. Which of the following would you be least likely to recommend that he place in...

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $72,500,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash...