Question

An 8% coupon bond with 3 years to maturity has a yield of 7%. Assume that coupon is paid semi-annually and face value is $1,000.

(a) Calculate the price of the bond. (Keep 2 decimal places, e.g. 90.12)  
(b) Calculate the duration of the bond. (Keep 4 decimal places, e.g. 5.1234)  
(c) Calculate this bond's modified duration. (Keep 4 decimal places, e.g. 5.1234)  
(d) Assume that the bond's yield to maturity increases from 7% to 7.2%, estimate the new price of the bond. (Keep 2 decimal places, e.g. 90.12)   

Answer 1

Bond
Coupon	8%	with semi annual payment
Time to maturity	3 years
Periods	6
Face value	1000
Yield	7%
Price	$1,026.64	PV(7%/2,6,8%*1000/2,1000,)
Duration
Period (T)	CF	PVF	CF*PVF*T
1	40	0.9662	38.65
2	40	0.9335	74.68
3	40	0.9019	108.23
4	40	0.8714	139.43
5	40	0.8420	168.39
6	1040	0.8135	5076.24
		Total	5605.63
		Duration= Total/Price	5.4602
Modified duration		Duration/(1+YTM/2)	5.2755
Bond
Coupon	8%	with semi annual payment
Time to maturity	3 years
Periods	6
Face value	1000
Yield	7%
Price	$1,021.24	PV(7.2%/2,6,8%*1000/2,1000,)