Calculate the bond modified duration

Assignment Help Finance Basics
Reference no: EM132180018

Problem - Consider an annual coupon bond with a face value of $100, exactly four years to maturity and a 4% annual coupon. The bond is priced to yield 3.25% per year (annually compounded rate).

a) Calculate the price of the bond.

b) Calculate the bond's duration.

c) Calculate the bond's modified duration. Make sure your answer accounts for the fact that the bond is an annual pay bond (not semiannual).

d) Calculate the proportional change in the bond price if the bond yield changes from 3.25% to 3.5%.

e) Compare the answer that you get in d) to the estimate of this proportional change that you can derive from the bond's modified duration.

Reference no: EM132180018

Questions Cloud

What is causal story that the news story is trying to tell : Read the article A Messy Desk Encouragesd a Creative Mind by: Gretchen Reynolds. What is the causal story that the news story is trying to tell? Be specific
Recent ethical violation that made the public press : Search the Internet and find an example of a recent ethical violation that made the public press.
Advertisement for an apartment for sale : Harry (in Melbourne) saw an advertisement for an apartment for sale "off the plan" in New Zealand. The advertisement was on the internet.
Media vehicles will be effective for advertising placement : What 2-3 media vehicles will be most effective for advertising placement for this company/product and why?
Calculate the bond modified duration : Calculate the bond's modified duration. Make sure your answer accounts for the fact that the bond is an annual pay bond (not semiannual)
Write a research report on given topic : Research Report - Explain the topic you are writing about, your position on the topic and briefly introduce the three points you will use to support
Fire and claims were filed with the insurance company : Thompson's house was destroyed by fire and claims were filed with the insurance company. The insurance company (insurer) hired
Works odd jobs for local businesses : Finally, Levi is twenty-six years old. He currently works odd jobs for local businesses - supplementing their sales staff and booking business.
Promote a corporation that would eventually be named : Wyatt was trying to promote a corporation that would eventually be named "Fun with Fans, Inc." In that capacity, Wyatt signed a lease in the name of Fun

Reviews

Write a Review

Finance Basics Questions & Answers

  Why will it be hard to achieve stable interest rates

If the Fed fails to achieve low and steady inflation, why will it be hard to achieve stable interest rates?

  What is the apr with monthly compounding

Your bank account pays interest with an EAR of 5%. What is the APR quote for this account based on semiannual compounding? What is the APR with monthly compounding?

  Calculate the bond price today

Market interest rates on similar bonds are 10.64 percent. Calculate the bond's price today. Please assist.

  What is the relationship between business risk

What is the relationship between business risk, financial risk, and beta (systematic or market risk)

  At what price should the annual payment bond sell

Neither bond is callable. At what price should the annual payment bond sell?

  Prepare a multiple-step income statement

Assuming that 100,000 shares of common stock are outstanding, calculate the earnings per share before extraordinary items and the net earnings per share.

  What recommendation would you make

If the cost of the direct send is $650 and the firm can earn 11% on these funds, what recommendation would you make? Explain.

  Capital project analysis failure

Synthesize your one-paragraph position on what 3-5 specific factors you believe most likely to contribute to capital project analysis failure.

  Identify account that would typically found on balance sheet

Identify one account that would typically be found on a balance sheet, and one account that would typically be found on an income statement, and define them.

  Calculate the future value of annuity of investing

a. Calculate the Future Value of Annuity of investing $6,000 each year starting now for 9 years at 5% interest rate.

  Explain the interactions among market efficiency capital

1. explain the interactions among market efficiency capital budgeting and the cost of capital.2. a. give two examples

  Earnings per share computations

Cabana Corporation has 400,000 shares of common stock outstanding throughout 2013. In addition, the corporation has 5,000, 20-year, 9% bonds issued at par in 2011. Each $1,000 bond is convertible into 20 shares of common stock after 9/23/14. During t..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd