- +44 141 628 6080
- [email protected]

A calculate the duration for a bond that has a maturity of

Problem 1: Consider three Treasury bonds each of which has a 10 percent semiannual coupon and trades at par.

a. Calculate the duration for a bond that has a maturity of four years, three years, and two years.

b. What conclusions can you reach about the relationship between duration and the time to maturity? Plot the relationship.

Problem 2: A six-year, $10,000 CD pays 6 percent interest annually and has a 6 percent yield to maturity. What is the duration of the CD? What would be the duration if interest were paid semiannually? What is the relationship of duration to the relative frequency of interest payments?

Problem 3: Maximum Pension Fund is attempting to manage one of the bond portfolios under its management. The fund has identified three bonds that have five year maturities and trade at a yield to maturity of 9 percent. The bonds differ only in that the coupons are 7 percent, 9 percent, and 11 percent.

a. What is the duration for each bond?

b. What is the relationship between duration and the amount of coupon interest that is paid? Plot the relationship.

Problem 4: An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10 percent, have $10,000 par values, and have five years to maturity. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12 percent.

a. What is the duration for each five-year bond?

b. What is the relationship between duration and the amount of coupon interest that is paid?

Problem 5: Suppose you purchase a six-year, 8 percent coupon bond (paid annually) that is priced to yield 9 percent. The face value of the bond is $1,000.

a. Show that the duration of this bond is equal to five years.b. Show that if interest rates rise to 10 percent within the next year and your investment horizon is five years from today, you will still earn a 9 percent yield on your investment.

c. Show that a 9 percent yield also will be earned if interest rates fall next year to 8 percent.

Now Priced at $50 (50% Discount)

Recommended **(93%)**

1939578

Questions

Asked

3,689

Active Tutors

1434309

Questions

Answered

**
Start Excelling in your courses, Ask a tutor for help and get answers for your problems !! **

Â©TutorsGlobe All rights reserved 2022-2023.

## Q : What effect have recent actions of the federal reserve and

write a paper that addresses the following issueswhat is the importance of exchange rateswho benefits and who loses