A C D E F 1 BOND DURATION CALCULATION Yield to Maturity 2 (YTM) 8% 3 Time-Weighted Average Maturity of the Payments Time-Weighted Average Maturity of the Payments Received From the Received From the 4 Year CLA Bond A CLB Bond B 1 70 0.0695 130 0.0901 70 0.1287 130 0.1669 7 3 70 0.1787 130 0.2318 8 4 70 0.2206 130 0.2862 70 0.2553 130 0.3312 10 6 70 0.2837 130 0.3681 11 7 70 0.3065 130 0.3976 12 8 70 0.3243 130 0.4207 13 9 70 0.3378 130 0.4383 14 10 1,070 5.3127 1,130 3.9192 15 16 17 Bond price 932.90 1,335.50 18 19 Estimation of the Macaulay duration using the mathematical formula 20 Duration ?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Consider two bonds A and B with payments , where . Bond A has just been issued. Its face value is $1,000, it bears coupon rate of 7%, and it will mature in 10 years. Bond B was issued 5 years ago. This bond has $1,000 face value and bears a 13% coupon rate. When issued, this bond had a 15-year maturity, so its remaining maturity is 10 years. The yield to maturity for both bonds is 8% (see Cell B2 in the spreadsheet below).
- Using the Excel spreadsheet below estimate the duration of each of the two bonds A (Cell B20) and B (Cell E20) using the Macaulay duration measure. Show your calculations. Which bond has the longest duration?
Macaulay Duration is the duration which shows the average time to receive the cash flows from a bond and is measured in years. This shows the holding period of the bond that is it shows the period till when the present value of the cash flows received is equal to the current market price paid for the bond. This technique also measures the sensitivity of the price of the bond with the changes in the rate of interests.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
