Use Excel to calculate the Macaulay duration of the following bonds: Question 1. A 10-year 10% semiannual
Question:
Use Excel to calculate the Macaulay duration of the following bonds:
Question 1. A 10-year 10% semiannual coupon bond with a yield-to-maturity of 8%. (10)
Question 2. A 10-year 10% annual coupon bond with a yield-to-maturity of 8%. (10)
Question 3. A 10-year zero-coupon bond with a yield-to-maturity of 8%. (10)
Calculate the Macaulay duration of the following perpetual bonds (You can put your answer in your excel):
Question 4. A 10% perpetual semiannual coupon bond with a yield-to-maturity of 8%.(10)
Question 5. A 10% perpetual annual coupon bond with a yield-to-maturity of 8%.(10)
Question 6. Use Excel to do the bond immunization (50):
The fund will have to pay the fund investors $1,000,000 after two years. Investors require that the fund invest in only annual coupon bonds:
1) Three year 8.5% bonds
2) Rolling one-year 8% bonds
Both come in denominations of $1000.
The market Yield is 9%.
Residual Cash can earn a market yield.
Notice: you should invest more than the present value of the liability amount. Hence, if you find you should invest in 481.74 shares of 8.5% bond, then you should buy 482 shares of 8.5% bond. If you find you should invest in 369.43 shares of 8% bond, then you should buy 370 shares of 8.0% bond.
Find out the portfolio value when the market yield is 10% and 8% after investing.
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown