Calculate the duration and modified duration for a bond

Assignment Help Business Economics

Reference no: EM13836234

a. Calculate the duration and modified duration for a bond that has a coupon rate of 7% (paid annually), 3 years to maturity, a YTM of 7% and a par value of $1000.

b. Calculate the effect on the price of the bond (in dollars) of a 3% decrease in yield using the duration rule and the convexity correction (assume convexity of 125).

c. Show this difference graphically labeling all axes and relevant components. (Be sure to show the actual price differences and pricing error.)

Reference no: EM13836234

Questions Cloud

Earnings before interest and taxes : ABC Company currently does not have any debt. Its earnings before interest and taxes (EBIT) are $500,000, and it is a zero-growth company. The firm's tax rate is 40%. What is the firms cost of equity?

After-tax cash flows for equipment used for research : The Pukie-Duke Company asked you to determine some of the after-tax cash flows for equipment used for research and development that is being considered. Pukie-Duke has found a company that will make them a $200,000 loan for the equipment at 10% and 4..

Testing time available in the next production period : The Electrotech Corporation manufactures two industrial-sized electrical devices: generators and alternators. Both of these products require wiring and testing during the assembly process. There are 260 hours of wiring time and 140 hours of testing t..

Discuss the security market line : Discuss the Security Market Line (What it depicts, what variable measures its slope and its intercept). Show a graphical example using the market portfolio.

Calculate the duration and modified duration for a bond : Calculate the duration and modified duration for a bond that has a coupon rate of 7% (paid annually), 3 years to maturity, a YTM of 7% and a par value of $1000. Calculate the effect on the price of the bond (in dollars) of a 3% decrease in yield usin..

What is the invoice price of the bond : Suppose you have purchased a bond with a coupon rate of 8% that makes interest payments semi-annually, a yield to maturity (hint: this is the annual figure) of 6.5%, and a par value of $1000. If the bond matures in 5 years, what is the price of the b..

What is its growth rate : Suppose a firm has an expected ROE of 10%. The firm reinvests 75% of its earnings. What is its growth rate? Assume this firm pays a current dividend of $4.25. You expected to sell the stock at the end of 3 years for $85.

Calculate that time needed to pay off the loan : Suppose that in the loan described, the borrower made a larger payment, as indicated. Calculate (a) that time needed to pay off the loan, b) the total amount of the payments, and c) the amount of interest saved, compared with the original loan and pa..

Deposited today that will yield the same total amount : Find the lump sum deposited today that will yield the same total amount as this yearly payment made at the end of each year for 20 years at the given interest rate, compounded annually. $55,000 at 5%.

User Account

All Pages