7. Consider three five-year Treasury bonds at par ($1,000) with coupon of 2%. 4%, and 6%...
7. Consider three five-year Treasury bonds at par ($1,000) with coupon of 2%. 4%, and 6% respectively.
(a) Compute their durations. (b) What can you conclude about the relationship between duration and coupon?
Homework Answers
Duration of 2% bond=(1*2%*1000/1.02+2*2%*1000/1.02^2+3*(1000+2%*1000)/1.02^3)/1000=2.941560938
Duration of 4% bond=(1*4%*1000/1.04+2*4%*1000/1.04^2+3*(1000+4%*1000)/1.04^3)/1000=2.886094675
Duration of 6% bond=(1*6%*1000/1.06+2*6%*1000/1.06^2+3*(1000+6%*1000)/1.06^3)/1000=2.833392666
Duration is inversely proportional to coupon
Add Answer to:
7. Consider three five-year Treasury bonds at par ($1,000) with
coupon of 2%. 4%, and 6%...
What is the duration of a five-year, $1,000 Treasury bond with a 10 percent semiannual coupon...
What is the duration of a five-year, $1,000 Treasury bond with a 10 percent semiannual coupon selling at par? Selling with a yield to maturity of 12 percent? 14 percent? What can you conclude about the relationship between duration and yield to maturity? Plot the relationship. Why does this relationship exist? (LG 3-7). 6 Bank Three currently has $600 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of...
Consider the following. a. What is the duration of a four-year Treasury bond with a 7...
Consider the following. a. What is the duration of a four-year Treasury bond with a 7 percent semiannual coupon selling at par? b. What is the duration of a three-year Treasury bond with a 7 percent semiannual coupon selling at par? c. What is the duration of a two-year Treasury bond with a 7 percent semiannual coupon selling at par?
Consider a five-year, 8 percent annual coupon bond selling at par of $1,000. What is the...
Consider a five-year, 8 percent annual coupon bond selling at par of $1,000. What is the duration of this bond? Show your work please
8. Croft Inc, bonds have a par value of $1,000. The bonds have a 4% coupon...
8. Croft Inc, bonds have a par value of $1,000. The bonds have a 4% coupon rate and will mature in 10 years. Assume the bond is semi-annual a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. b. Explain the impact on price if the required rate of return decreases. c. How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will...
8. You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell...
8. You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell the bond three yean is your rate of return over this three-year period? A 40 percent B. 10 percent C. 20 percent D. 30 percent 11. Duration True or false? Explain. a. Longer-maturity bonds necessarily have longer durations. b. The longer a bond's duration, the lower its volatility. c. Other things equal, the lower the bond coupon, the higher its volatility. d. If interest...
What is the modified duration of a three-year $1,000 par value bond with a 5% coupon...
What is the modified duration of a three-year $1,000 par value bond with a 5% coupon paid semi- annually that is priced to yield 4%? 2.61 5.37 2.77 5.65 Question 6 4 pts You own two bonds. You have $2,000,000 in Bond A which has a modified duration of 8.14. You have $2,250,000 in Bond B which has a modified duration of 4.23. If rates rise by 50 basis points, what would be the approximate impact of the value of...
5a FYI bonds have a par value of $1,000. The bonds pay an 8% annual coupon...
5a FYI bonds have a par value of $1,000. The bonds pay an 8% annual coupon and will mature in 11 years. i) Calculate the price if the yield to maturity on the bonds is 7%, 8% and 9%, respectively. ii) What is the current yield on these bonds if the YTM on the bonds is 7%, 8% and 9%, respectively. Hint, you can only calculate current yield after you have determined the intrinsic value (price) of the bonds. iii)...
Consider three bonds with maturities of 3, 6, and 9 years. All three bonds have a...
Consider three bonds with maturities of 3, 6, and 9 years. All three bonds have a coupon rate of 7% and have face values of $1,000. Assume semiannual coupon payments. Use this information to answer the following questions: a) What would be the market price of each bond if their YTM was 5%? b) What would be the market price of each bond if their YTM was 9%? c) Graph the relationship between bond prices and the yields-to-maturity for the...
12. The current price of a 1-year zero-coupon Treasury bond is $975 (with $1,000 par value)....
12. The current price of a 1-year zero-coupon Treasury bond is $975 (with $1,000 par value). If the annual forward rate between year 1 and 2 implied by the zero yield curve is equal to 4.5%, what is the current price of a 2-year zero-coupon Treasury bond (with $1,000 par value)? (a) $950.63 (b) $933.01 (c) $924.56 (d) $1,000.00
Q. consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity YTM A 1...
Q. consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity YTM A 1 3% B 2 4% C 3 5% D 4 6% a. What is the expected 1-year interest rate in the 3rd year? b. What will be the price of the 2-year zero-coupon bond after 2 years? c. Suppose, next year, you consider buying 3-year zero-coupon bond and holding it for 2 years. What will be the realized compound return?
8. Croft Inc, bonds have a par value of $1,000. The bonds have a 4% coupon rate and will mature in 10 years. Assume the bond is semi-annual a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. b. Explain the impact on price if the required rate of return decreases. c. How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will...
8. You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell the bond three yean is your rate of return over this three-year period? A 40 percent B. 10 percent C. 20 percent D. 30 percent 11. Duration True or false? Explain. a. Longer-maturity bonds necessarily have longer durations. b. The longer a bond's duration, the lower its volatility. c. Other things equal, the lower the bond coupon, the higher its volatility. d. If interest...
What is the modified duration of a three-year $1,000 par value bond with a 5% coupon paid semi- annually that is priced to yield 4%? 2.61 5.37 2.77 5.65 Question 6 4 pts You own two bonds. You have $2,000,000 in Bond A which has a modified duration of 8.14. You have $2,250,000 in Bond B which has a modified duration of 4.23. If rates rise by 50 basis points, what would be the approximate impact of the value of...
5a FYI bonds have a par value of $1,000. The bonds pay an 8% annual coupon and will mature in 11 years. i) Calculate the price if the yield to maturity on the bonds is 7%, 8% and 9%, respectively. ii) What is the current yield on these bonds if the YTM on the bonds is 7%, 8% and 9%, respectively. Hint, you can only calculate current yield after you have determined the intrinsic value (price) of the bonds. iii)...
12. The current price of a 1-year zero-coupon Treasury bond is $975 (with $1,000 par value). If the annual forward rate between year 1 and 2 implied by the zero yield curve is equal to 4.5%, what is the current price of a 2-year zero-coupon Treasury bond (with $1,000 par value)? (a) $950.63 (b) $933.01 (c) $924.56 (d) $1,000.00
Most questions answered within 3 hours.
-
Your company has six-sigma conformance for each of 10 component
that are a part if a...
asked 10 minutes ago -
Explain the buffering components of urine, the chemical
equation, where the system is found and find...
asked 16 minutes ago -
The financial records of Leon Paul Inc. were destroyed by fire
at the end of 2017....
asked 18 minutes ago -
The normal-curve approximation can also be used for discrete
distribution other than the binomial distribution. For...
asked 49 minutes ago -
1. Find the following z values for the standard normal
variable Z. (You may find it...
asked 45 minutes ago -
Lakeside Motors will sell you a $9000 car for $225 a month for 60
months. What...
asked 35 minutes ago -
how immigrants foster innovations and how it lead to economic
growth of the host country????
"Not...
asked 46 minutes ago -
What are some of the methods that creditors use to
reduce risk in credit transactions?
asked 40 minutes ago -
1 Explain HOW you would use the scientific method to test
which helps kids lose weight:...
asked 48 minutes ago -
Given the complexities involved with supply chains, might it
make sense for a business to vertically...
asked 48 minutes ago -
MARKET EFFICIENCY IN-CLASS WORKSHEET 2 This question examines
the market for peanut butter. You will use...
asked 1 hour ago -
An ideal gas (which is is a hypothetical gas that conforms to
the laws governing gas...
asked 1 hour ago