(a) what is the Macaulay Duration of this set of cash flows? Answer correctly to 2 decimal places. (b) Assume a financial intermediary needs $800,000 in exactly T years from today, where T is the "duration" in years you found in part (a). What $ investment is required in these bonds so that the firm will have $800,000 in T years. Calculate your answer correct to the nearest dollar.
(a) what is the Macaulay Duration of this set of cash flows? Answer correctly to 2 decimal places. (b) Assume a financial intermediary needs $800,000 in exactly T years from today, where T is the "duration" in years you found in part (a). What $ investment is required in these bonds so that the firm will have $800,000 in T years. Calculate your answer correct to the nearest dollar.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Ab. 131.
Transcribed Image Text:NOTE: THIS PROBLEM MUST BE SOLVED IN EXCEL, with NO ROUNDING of INTERMEDIATE RESULTS
Consider a bond that has irregular cash flow promises before it matures in 10 years. Assume the discount rate is a constant 8% across all
maturities.
Year
Promised Payments
0
1
100
2
250
3
300
4
450
5
500
6
500
7
600
8
650
9
800
10
1000
(a) what is the Macaulay Duration of this set of cash flows? Answer correctly to 2 decimal places.
(b) Assume a financial intermediary needs $800,000 in exactly T years from today, where T is the "duration" in years you found in part (a).
What $ investment is required in these bonds so that the firm will have $800,000 in T years. Calculate your answer correct to the nearest
dollar.
Note to get the correct answer for (b) do not round your answer to part (a) during the calculation. This should be done in excel.
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