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Your colleague is constructing a table to calculate the duration of 5 year annual coupon...

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Finance

Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 3% pa. The bonds have a face value of $110,000 and an effective annual coupon rate of 11% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting.

a) Complete the table for your colleague. Give your answers to 4 decimal places.

Cash flow Amount ($) Present value of the cash flow (PVCF) Weight (PVCF/price)
1 12,100 11,747.5728 0.0782
2 12,100 11,405.4105 0.0759
3 12,100 11,073.2141 0.0737
4 12,100 10,750.6933 0.0715
5

b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places.

D = _____ years

c) If the yield were to decrease immediately, the duration of the bonds would:

a) increase b) decrease c) remain unchanged

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