Homework Answers
Security A
| Year (1) | Cash flow (2) | Present value factor @7% (3) | Present value-PV (4) | Proportion of total PV (5) | Duration (6)=5*1 | Volatality (7)=6/1.07 |
| 1 | 80 | 0.9345 | 74.760 | 0.3082 | 0.3082 | |
| 2 | 80 | 0.8734 | 69.872 | 0.2880 | 0.5760 | |
| 3 | 120 | 0.8162 | 97.944 | 0.4038 | 1.2114 | |
| TOTAL | 242.576 | 1.0000 | 2.0956 | 1.96 |
Security B
| Year (1) | Cash flow (2) | Present value factor @7% (3) | Present value-PV (4)=2*3 | Proportion of total PV (5) | Duration (6)=5*1 | Volatality (7)=6/1.07 |
| 1 | 60 | 0.9345 | 56.070 | 0.2063 | 0.2063 | |
| 2 | 60 | 0.8734 | 52.404 | 0.1929 | 0.3858 | |
| 3 | 200 | 0.8162 | 163.240 | 0.6008 | 1.8024 | |
| TOTAL | 271.714 | 1.0000 | 2.3945 | 2.24 |
Security C
| Year (1) | Cash flow (2) | Present value factor @7% (3) | Present value-PV (4) | Proportion of total PV (5) | Duration (6)=5*1 | Volatality (7)=6/1.07 |
| 1 | 50 | 0.9345 | 46.725 | 0.1903 | 0.1903 | |
| 2 | 50 | 0.8734 | 43.670 | 0.1779 | 0.3558 | |
| 3 | 190 | 0.8162 | 155.078 | 0.6318 | 1.8954 | |
| TOTAL | 245.473 | 1.0000 | 2.4415 | 2.28 |
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