Peter buys a 6% annual coupon bond with 4 years to maturity. The bond has a...

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Peter buys a 6% annual coupon bond with 4 years to maturity. The bond has a yield-to-maturity of 7%. The par value is $1,000. i. Calculate the duration and modified duration of the bond. (5 marks) ii. If the yield increases to 7.5%, what is the new bond price using the duration concept? (3 marks) At the end of next 3 years, you need to pay $70,000, $90,000 and $120,000 respectively. i. If the market interest rate is 7% per annum., what will be the duration of your payment obligation? (4 marks) ii. Suppose you plan to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much of each of these bonds (in market value) you will hold in the portfolio. (5 marks) Peter buys a 6% annual coupon bond with 4 years to maturity. The bond has a yield-to-maturity of 7%. The par value is $1,000. i. Calculate the duration and modified duration of the bond. (5 marks) ii. If the yield increases to 7.5%, what is the new bond price using the duration concept? (3 marks) At the end of next 3 years, you need to pay $70,000, $90,000 and $120,000 respectively. i. If the market interest rate is 7% per annum., what will be the duration of your payment obligation? (4 marks) ii. Suppose you plan to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much of each of these bonds (in market value) you will hold in the portfolio. (5 marks) Peter buys a 6% annual coupon bond with 4 years to maturity. The bond has a yield-to-maturity of 7%. The par value is $1,000. i. Calculate the duration and modified duration of the bond. (5 marks) ii. If the yield increases to 7.5%, what is the new bond price using the duration concept? (3 marks) At the end of next 3 years, you need to pay $70,000, $90,000 and $120,000 respectively. i. If the market interest rate is 7% per annum., what will be the duration of your payment obligation? (4 marks) ii. Suppose you plan to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much of each of these bonds (in market value) you will hold in the portfolio. (5 marks) Peter buys a 6% annual coupon bond with 4 years to maturity. The bond has a yield-to-maturity of 7%. The par value is $1,000. i. Calculate the duration and modified duration of the bond. (5 marks) ii. If the yield increases to 7.5%, what is the new bond price using the duration concept? (3 marks) At the end of next 3 years, you need to pay $70,000, $90,000 and $120,000 respectively. i. If the market interest rate is 7% per annum., what will be the duration of your payment obligation? (4 marks) ii. Suppose you plan to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much of each of these bonds (in market value) you will hold in the portfolio. (5 marks)

Answer rating: 100% (QA)

i Calculate the duration and modified duration of the bond 5 marks The duration of a bond is a measure of its sensitivity to changes in interest rates It is defined as the weighted average of the time ... View the full answer