Question

The below bond is traded at yield 5.2 % and has seven (7) years to maturity. The face value is $1000 and coupons are paid semi-annually. Bond Coupon Rate A 6.00% Table 01 (a) Calculate the price of the bond. (3 marks) (b) Calculate the duration of the bond. (5 marks) (C) Due to unforeseen circumstances, the last payment will be postponed to two years later. All other payments have no change. Calculate the new price and duration of the bond at the same yield. (12 marks)

Answer 1

fage 1 Face value - $ 1000 Coupon rate – 6.00% year to makeady - year / ome of period is 14. Yield - sigy. 1 5.2/ 2 2.6% Coupons are pand beini-annually $1600 x 6%. 2860 : 60/2 2 $30 Calculation och platen of kond Copour & RIFA @ 9.6%, t Felevala puis a $30x 11.61 + $10000 .688 - & Face Valat pul 6% 2 $348.3 + $698 (6) Period = $146.3 Calculation of Duration of the Rooms Cash flows Pr@ 2% Por of Car Ilows feeded x Corhoflow .9704 9486 Prof Period & Cash flow $ 2.0 •S15 & 2088 05.12 $56.56 485:26 I rabi62 .38 $ 150.25 0.X & 128:46 23 $ 150 $180 $10 & sho -8275 +7894 -766h 4429 $9346 $ 22:59 & 23.32 300 $330 24 -2014 9767 21-01 $216.72 *0.50 $360 6609 $ 390 $1020 -66!! $480,93 $ long & 9.65.55 9533.06 1613-01

Duration 2 $1613.01/¢ lodo 2 11.61 If the lart payment will be postponed to two years later than Calculation of now price of bond and duration of bonds Plice of fond 2 & 10x14.83 + 1000 x + 630 2 $ ¢ 26.9+8630 2 $ 1056.80 Duention of bond Cash flour Pr@ BY. Praf Capt flows Period & Cash flow 24701 9h24 $ bo Period 9157 Prof laund & Cath flow $29.197 & 56.556 $69.356 &lob.be $105.31 $150-75 $ 170.157 $30 $ 2.6.655 0696 (205 $ 25-195 & 180 A as at at that at of it at - $ $40 0467 $74.293 292.641 $9.992 $28.223 f 2.672 & drobe $ 80.427 &d-cb. paf $293.920 th $360 $938. 390 & asosoh & 965 55 $ 320 .661 $97.62 $ % & 12 $ 19,257 $16.146. $ 150 &6o5. orr. t shtet & 450 $ 480 & 510 18540 6050 5874 $999.136 $308.55 & roffo.no & t4 166.81 + 1300 Duration Bond $14166-21 som fun