Duration and price sensitivity a) Calculate the duration and modified duration of a bond with a face of $1,000, a 6% coupon rate, and a 5% YTM with 1 payment per year and a maturity of 10 years, using the Excel DURATION and MDURATION formulas. b) Calculate the following: 1. What are the approximate percentage and dollar changes in price for a 1% change in interest rates using the duration approximation formula? 2. What are the actual percentage and dollar changes in price if interest rates increase by 1%?

Duration and price sensitivity a) Calculate the duration and modified duration of a bond with a face of $1,000, a 6% coupon rate, and a 5% YTM with 1 payment per year and a maturity of 10 years, using the Excel DURATION and MDURATION formulas. b) Calculate the following: 1. What are the approximate percentage and dollar changes in price for a 1% change in interest rates using the duration approximation formula? 2. What are the actual percentage and dollar changes in price if interest rates increase by 1%?

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

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Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. Note: Input your answers as a percent rounded to 2 decimal places. 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 21 1-year T-bill at beginning of year 3 1-year T-bill at beginning of year 4 2-year security 3-year security 4-year security Expected Return % % % Interest Rate 7% 9% 10% 12%
The function s(t) = 0.16 − 0.04 e− t/4 provides the term structure of effective annual rates of zero coupon bonds of maturity t, with t in years. Find the following: (a) The effective annual rate of a 3 year zero coupon bond. (b) The 2-year forward effective annual rate for a one year period. (c) The forward effective annual rate for a one year period, 3 years forward. (d) The 3-year forward effective annual rate for a 3 month period. (e) The forward effective annual rate for a one day period, 3 years forward (the “overnight” rate).(Use 1/365 for a one-day period.)
Assume that the bond from problem #1 reaches maturity in 5 years instead of 15 years, with the same coupon rate and par value. What would the relevant market prices be at 10%, 5%, and 14% required market rates of return?
Give typing answer with explanation and conclusion Consider a 6% semiannual coupon payment bond with five years to maturity currently priced at par (YTM = 6.00%). Using a 30 bp increase and 30 bp decrease in yield to maturity, calculate the approximate convexity for this bond.
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year 3 1-year T-bill at beginning of year 4 2-year security 3-year security 4-year security Expected Return % % % Interest Rate 61 98 7% 108
Consider a bond with a face value of $1,000 that sells for an initial price of $700. It will pay no coupons for the first nine years and will then pay 11% coupons for the remaining 29 years. Choose an equation showing the relationship between the price of the bond, the coupon (in dollars), and the yield to maturity. O A. B. O C. O D. 700 = 700 = 700 = 700 = 110 110 9 (1+i)⁹ (1+i)⁹+1 + 110 + i) ⁹ + 1 (1 + 1,000 (1+i) 29-9 1,000 (1 + i) 9 +29 + +...+ 110 (1+i) 9+2 + 110 (1 + i)9+29-1 110 + (1 + i) ⁹ + 110 (1+i)9 +29 9+29-1 + 110 (1 + i)9 +29 + 1,000 (1+i) 9+29
Suppose you are given the following information about the default- free, coupon-paying yield curve: maturity (years) 1 Coupon rate (annual payments) 0% YTM 2 10% 3.000% 4.908% 3 6% 6.840% Use arbitrage to determine the yield to maturity of a two-year and three year zero-coupon bond . (express in percentages, round to whole percentage)
Using duration and convexity approximation, compute the percentage price change on a 10-year fixed coupon bond, if the interest rate increases by 1%. The modified duration of the bond is 6 years, and convexity is 200 year2. Group of answer choices -6% -5% 7% -7%
A fixed income analyst is evaluating three potential bond issues for interest rate risk. Data concerning the issues are collected in an exhibit...
A n-year annual coupons bond with coupon rate r per year. The yield rate is 0.10. Calculate the Macaulay duration of the bond for all four possible combinations of parameters: • n = 10 or 30 • r = 0.05 or 0.15
What is the answer ?

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