Problem 5: Bond A pays 12% coupon annually, has a par value of $1,000 and will...

80.2K

Verified Solution

Question

Finance

Problem 5: Bond A pays 12% coupon annually, has a par value of$1,000 and will mature in 3 years. Using a 10% discount rate(Yield-to-Maturity), what is the value of the bond?
Problem 6: Using your information on Bond A above, calculate the(Macaulay) duration of the bond.
Problem 7: What is the (Macaulay) duration of a bond with thefollowing characteristics: N = 5, PMT = 90, FV = 1000, I/Y =12%?
Problem 8: What is the duration of a bond with the followingcharacteristics: N = 5, PMT = 10, FV = 1000, I/Y = 12%?
Problem 9: The modified duration of a bond is 9.27 Years. Whatis the approximate change in the value of the bond if interestrates drop by 3 percentage points (3%)?
Problem 10: A bond portfolio has a (Macaulay) duration of 7.23years. Using a yield-to-maturity of 18%, what is the approximatechange in the value of the bond portfolio if interest ratesincrease by 5%?

Answer & Explanation Solved by verified expert

4.1 Ratings (458 Votes)

Problem 5 This is a simple question The value is the present value of all future cash flows In this case u make a cashflow chart at Future Value 1201201120 and discount it at 10 Hence the value is 1049737 Problem 6 Duration or Macaulay Duration is a measure of the sensitivity of a Bonds Market Value to the interest rates It is calculated by dividing the Present Value of the Future Cash Flows Weighted with time to receive by the Current Market Value As Current Market Value is not given in any of the problems Im assuming a See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member