You are trying to compare the interest rate risks of two bonds: (i) a 15-year 8%...

 

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You are trying to compare the interest rate risks of two bonds: (i) a 15-year 8% bond, and (ii) a 10-year 6% bond. Both bonds pay semi-annual interest payments. The current market interest rate for the 15-year bond is 7.2% and the market interest rate for the 10-year bond is 5.8%. a. Determine the (Macaulay) durations of the two bonds. b. Based on your findings in (a) and (b), which bond has a greater interest rate risk? Explain. You have two bonds: Bond A and Bond B are both 10-year bonds with semi-annual payments (and pars of $1,000). For Bond A, the coupon rate is 6% for the first 5 years and 8% for the next 5 years; whereas for Bond B, the coupon rate is 8% for the first 5 years and 6% for the next 5 years. The current market interest rate is 7%. a. Determine the intrinsic values of the two bonds. b. Determine the (Macaulay) durations of the two bonds. C. Discuss how the coupon rates affect the durations of the bonds. You are trying to compare the interest rate risks of two bonds: (i) a 15-year 8% bond, and (ii) a 10-year 6% bond. Both bonds pay semi-annual interest payments. The current market interest rate for the 15-year bond is 7.2% and the market interest rate for the 10-year bond is 5.8%. a. Determine the (Macaulay) durations of the two bonds. b. Based on your findings in (a) and (b), which bond has a greater interest rate risk? Explain. You have two bonds: Bond A and Bond B are both 10-year bonds with semi-annual payments (and pars of $1,000). For Bond A, the coupon rate is 6% for the first 5 years and 8% for the next 5 years; whereas for Bond B, the coupon rate is 8% for the first 5 years and 6% for the next 5 years. The current market interest rate is 7%. a. Determine the intrinsic values of the two bonds. b. Determine the (Macaulay) durations of the two bonds. C. Discuss how the coupon rates affect the durations of the bonds.

Answer rating: 100% (QA)

a The Macaulay duration of a bond is a measure of its interest rate risk It is calculated as the wei... View the full answer