Reference no: EM133015178

Below is the information of a zero-coupon bond which has a face value of RM1000, 10-year maturity, 10% coupon bond with interest rate of 10%.

Year Cash payments (Zero-Coupon Bond)

1. 100
2 100
3 100
4 100
5 100
6 100
7 100
8 100
9 100
10 100
10 1,000

a) Calculate the present value of cash payments.

b) Calculate the weights of each cash payments.

c) Calculate the weighted maturity.

d) Assume a fund manager has the option to hold a coupon bond with 8-year maturity with a coupon rate of 8%. He has an option of holding the same duration coupon bond with a coupon rate of 15%. The interest rate is 4.5% when the duration for 8% coupon bond is 6.59 years. Calculate the change in bond price if the interest rate increases from 4.5% to 6.9%.