1. Problem 13-01 eBook Problem 13-01 Calculate the Macaulay duration of a 10%, $1,000 par bond...

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Answer 1

Answer #1

Semi annual period	cash flow	present value factor at 7% =1/(1+r)^n r =14/2 = 7% n =1,2,3…….6	present value of cash flow = cash flow*present value factor at 7%	present value of cash flow*semi annual period
1	50	0.934579439	46.72897196	46.728972
2	50	0.873438728	43.67193641	87.3438728
3	50	0.816297877	40.81489384	122.444682
4	50	0.762895212	38.1447606	152.579042
5	50	0.712986179	35.64930897	178.246545
6	1050	0.666342224	699.659335	4197.95601
Value of bond = sum of present value of cash flow			904.6692068
sum of (present value of cash flow*semiannual period)				4785.29912
Maculay's duaration = sum of (present value of cash flow*semiannual period)/value of bond	4785.29912/904.6692			5.29
Modified duration = Maculay's duration/(1+YTM)	5.29/(1.07)			4.94
estimate of Price change = modified duration*change in rate	-4.94*-1%	4.94%

Answer 2

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