An investment pays $1000 in two years and $3000 at the end of the fifth year. It is priced to yield an annual effective rate of 7.5%. Find the price, Macaulay duration, modified duration and convexitv Estimate the price if the interest rate changes to 7.4% using modified duration.

An investment pays $1000 in two years and $3000 at the end of the fifth year. It is priced to yield an annual effective rate of 7.5%. Find the price, Macaulay duration, modified duration and convexitv Estimate the price if the interest rate changes to 7.4% using modified duration.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 29P

See similar textbooks

Related questions

Q: An investment pays you $100 at the end of each of the next 3 years. The investment will then pay you…

A: Here,

Q: assume that at the beginning of the year, you purchase an investment for $7,200 that pays $100…

A: Initial value=$7200Final value=$6800Annual income=$100

Q: Consider an investment which pays 1.05 times your original payment (which is not returned) after two…

A: The return on any investment is given by R = (F - P)/P * 12/n Where P = value invested F = value…

Q: Consider a loan of 1,000,000 which is to be amortized by 60 monthly payments. The interest rate is…

A: Given, Loan amount is 1,000,000 Number of payments is 60 Interest rate is 10%

Q: The following investment requires a table factor for a period beyond the table. Calculate the new…

A: The formula of compound interest A = P 1 +r100n where A = Amount P = Principal r = Rate of…

Q: You are quoted an interest rate of 6% on an investment of $10 million. What is the value of your…

A: Future value forecasts are a tool used by investors in their financial planning. It facilitates…

Q: Suppose that a three-year FRN pays a six-month Libor plus 4% semi-annually. Currently, the six-month…

A: LIBOR rate:The LIBOR rate, also known as the London Interbank Offered Rate, is a benchmark interest…

Q: I need a detailed explanation and assistance to solve this problem: An investment offers $6,800 per…

A: a) Calculation of present value of investment at 7% required returnThe present value of investment…

Q: Consider an investment which pays $3,000 at the end of year 1, year 2, and year 3. In year 4, the…

A: Present value refers to the current valuation for a future sum. Investors determine the present…

Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

An investment pays $1000 in two years and $3000 at the end of the fifth year. It
is priced to yield an annual effective rate of 7.5%.
Find the price, Macaulay duration, modified duration and convexitv
Estimate the price if the interest rate changes to 7.4% using modified
duration.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

An annual percentage rate (APR) is determined by annualizing the rate using compound interest. Select one: True False The more frequent the compounding, the higher the future value, other things equal. Select one: True False Which statement is NOT true? a. Figure A correctly displays the relation between FVs of $1 investment at the interest rates 12.7% and 9.8%. b. Investment of $1 needs more than 7 years to double its value at the rate 9.8%, while only requiring less than 6 yeas to double at 12.7%. c. Figure B correctly displays the relation between PVs of $3 future value at the interest rates 12.7% and 9.8%. d. A discount factor for 5 years at 12.7% is lower than the discount factor for 5 years at 9.8%. After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 17.05% APR, or 1.4208% per month. What is the effective annual rate? a. 18.45% b. 19.41% c. 18.82% d. 19.56% A zero-coupon bond is a bond that pay no interest…
Today (t=0), you invested the starting prinipal of 1536 dollars. At the end of the first, second and third years, you will receive payments in the amount of 40%, 45% and 50% respectively of your initital investment. What is the net present value (NPV) of the investment if the minimum attractive rate of return (MARR) is 7.8%. Calculate the MARR for an NPV between $0 and $1 and draw the cash flow diagram.
An investment will pay $20,400 at the end of the first year, $30,400 at the end of the second year, and $50,400 at the end of the third year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use the appropriate factor(s) from the tables provided. Required: Determine the present value of this investment using a 9 percent annual interest rate.
Determine the present value P that must be invested to have the future value A at simple interest rate r after time t. A = $9000.00, r = 15.0%, t = 6 months (Do not round until the final answer. Then round up to the nearest cent as needed.)
An investment will pay $150 at the end of each of the next 3 years, $300 at the end of Year 4, $600 at the end of Year 5, and incur a $500 cost at the end of Year 6. If other investments of equal risk earn 6.7% annually, what is this investment’s present value?
An investment will pay $21,600 at the end of the first year, $31,600 at the end of the second year, and $51,600 at the end of the third year. (FV of $1. PV of $1. EVA of $1, and PVA of $1) Note: Use the appropriate factor(s) from the tables provided. Required: Determine the present value of this investment using a 9 percent annual interest rate. Note: Round your intermediate calculations and final answer to nearest whole dollar. Present value of investment
Consider a future value of $2,000, 8 years in the future. Assume that the nominal interest rate is 18.00%. Assume that there is semiannual compounding. Entering PMT=0 and a FV=$2,000 into a financial calculator, along with the appropriate periodic interest rate and value of N, yields a present value of approximately $ with semiannual compounding. Assume that there is quarterly compounding. Entering PMT=0 and a FV=$2,000 into a financial calculator, along with the appropriate periodic interest rate and value of N, yields a present value of approximately $ with quarterly compounding. Suppose now that the cash flow of $2,000 occurs only 1 year in the future. Assume that there is monthly compounding. Entering PMT=0 and a FV=$2,000 into a financial calculator, along with the appropriate periodic interest rate and value of N, yields a present value of approximately $ with monthly compounding.
An investment pays you $1000 at the end of each of the next 3 years. The investment will then pay you $2000 at the end of Year 4, $3000 at the end of Year 5, and $5000 at the end of Year 6. If the interest rate earned on the investment is 8 percent, what is its present value? What is its future value?
An investment pays $2,100 per year for the first 4 years, $4,200 per year for the next 3 years, and $6,300 per year the following 7 years (all payments are at the end of each year). If the discount rate is 11.15% compounding quarterly, what is the fair price of this investment?Work with 4 decimal places and round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72. Group of answer choices $28,030.03 $26,178.99 $26,443.43 $31,467.68 $30,145.51
An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6. A. If other investments of equal risk earn 4% annually, what is its present value? Round your answer to the nearest cent. B. If other investments of equal risk earn 4% annually, what is its future value? Round your answer to the nearest cent.
Find the PV and FV of an investment that makes the following end-of-year payments. The interest rate is 8%. Year Payment 1 100 2 200 3 400 Rate = 8% To find the PV, use the NPV function: PV = Year Payment x (1 + I )^(N-t) = FV1 100 1.17 116.64 2 200 1.08 216.00 3 400 1.00 400.00 Sum = ?PV = ?FV of PV = ?
An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 9% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent. Present value: $ Future value: $