Bond price and bond duration

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Reference no: EM131488989

Bond Price and Bond Duration.

: You just purchased a bond with a $1,000 par value and an 11.0% coupon rate that pays interest annually. The bond has two years remaining to maturity and has a 10.0% yield to maturity. Using a financial calculator, determine the price of the bond. Identify/show the keystrokes you used to get your answer.

: Assume now that the bond described in question 1 pays interest semi-annually. Determine the price. Show the keystrokes used.

: You have invested in a $1,000 par value bond with a 3-year maturity, an 8.0% annual coupon rate, and a 10.0% yield to maturity. Using the formula from your textbook, determine the duration (DUR) of this bond. Show your calculations used in arriving at your answer.

: Using the bond information from previously, now assume that it is a zero coupon bond. Find this bond's duration (DUR). Show your calculations.

: Bank of America (BOA), with assets consisting mostly of investments in corporate bonds, estimated the duration of its assets (DURAS) to be 9.5 years while its liabilities, consisting mainly of bank issued bonds and certificates of deposits, have an estimated duration (DURLIAB) of 14.3 years. BOA is anticipating a period of rising interest rates over the next several years. What should happen to BOA’s market value of net worth (increase, decrease, or no change) if interest rates do start to rise? Explain why.

Reference no: EM131488989

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