Please show your input data, and output data clearly, do not solve the problem in one cell, which includes all the input data and calculation and is easy to have errors. Your completed project1 should be saved and submitted as an Excel Workbook (submission in other format will not be accepted), the filename should begin as project1, then your last name and first letter of your first name. For example, if Betty Jones is submitting her answer to project1, she should save the file in Excel Workbook format and name it as project1JonesB When the number is calculated using an equation, and the spreadsheet does not contain that equation, only one-third of the credit should be given if the result is correct. Problem 1a (20 points): Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%. Solution to 1a: Payments PV of Payments Year 1 Year 2 Year 3 Time Weighted PV of Payments Time Weighted PV of Payments Divided by Price Curent bond price Duration of the Bond: Problem 1b (20 points): Consider the bond in Problem 1a. Calculate the expected price change if interest rates drop to 6.75% using the duration approximation. Also calculate the actual price change using discounted cash flow. Solution to 1b: Using the duration approximation, the price change is calculated as: Duration of the Bond: Change in interest rates Curent bond price Bond price change New Bond price after interest rate change Now using a discounted cash flow approach to get the new bond price with the interest rate change: Payments PV of payments New Bond price after interest rate change Year 1 Sum Note: You must use formulas and cell references when computing all values in the green cells! Year 2 Year 3 Sum
Please show your input data, and output data clearly, do not solve the problem in one cell, which includes all the input data and calculation and is easy to have errors. Your completed project1 should be saved and submitted as an Excel Workbook (submission in other format will not be accepted), the filename should begin as project1, then your last name and first letter of your first name. For example, if Betty Jones is submitting her answer to project1, she should save the file in Excel Workbook format and name it as project1JonesB When the number is calculated using an equation, and the spreadsheet does not contain that equation, only one-third of the credit should be given if the result is correct. Problem 1a (20 points): Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%. Solution to 1a: Payments PV of Payments Year 1 Year 2 Year 3 Time Weighted PV of Payments Time Weighted PV of Payments Divided by Price Curent bond price Duration of the Bond: Problem 1b (20 points): Consider the bond in Problem 1a. Calculate the expected price change if interest rates drop to 6.75% using the duration approximation. Also calculate the actual price change using discounted cash flow. Solution to 1b: Using the duration approximation, the price change is calculated as: Duration of the Bond: Change in interest rates Curent bond price Bond price change New Bond price after interest rate change Now using a discounted cash flow approach to get the new bond price with the interest rate change: Payments PV of payments New Bond price after interest rate change Year 1 Sum Note: You must use formulas and cell references when computing all values in the green cells! Year 2 Year 3 Sum
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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Question
This is a practice assignment.
Please show your input data, and output data clearly, do not solve the problem in one cell, which includes all the input data and calculation and is easy to have errors.
Your completed practice assignment should be saved and submitted as an Excel Workbook (submission in other format will not be accepted), the filename should begin as project1, then
your last name and first letter of your first name. For example, if Betty Jones is submitting her answer to project1, she should save the file in Excel Workbook format and name it as project1JonesB
When the number is calculated using an equation, and the spreadsheet does not contain that equation,
Transcribed Image Text:Please show your input data, and output data clearly, do not solve the problem in one cell, which includes all the input data and calculation and is easy to have errors.
Your completed project1 should be saved and submitted as an Excel Workbook (submission in other format will not be accepted), the filename should begin as project1, then
your last name and first letter of your first name. For example, if Betty Jones is submitting her answer to project1, she should save the file in Excel Workbook format and name it as project1JonesB
When the number is calculated using an equation, and the spreadsheet does not contain that equation, only one-third of the credit should be given if the result is correct.
Problem 1a (20 points): Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.
Solution to 1a:
Payments
PV of Payments
Year 1
Year 2
Year 3
Time Weighted PV of Payments
Time Weighted PV of Payments Divided by Price
Curent bond price
Duration of the Bond:
Problem 1b (20 points): Consider the bond in Problem 1a. Calculate
the expected price change if interest rates
drop to 6.75% using the duration approximation.
Also calculate the actual price change using discounted cash flow.
Solution to 1b:
Using the duration approximation, the price change is calculated as:
Duration of the Bond:
Change in interest rates
Curent bond price
Bond price change
New Bond price after interest rate change
Now using a discounted cash flow approach to get the new bond price with the interest rate change:
Payments
PV of payments
New Bond price after interest rate change
Year 1
Sum
Note: You must use formulas and cell references
when computing all values in the green cells!
Year 2
Year 3
Sum
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