Duration_homework

# Duration_homework - BA 4346 Duration homework 1 XYZ bonds...

This preview shows pages 1–3. Sign up to view the full content.

BA 4346 Duration homework 1. XYZ bonds just paid their annual coupon. They have a 5 percent coupon rate and mature in 5 years. They sell for 97.865% of par value. a. Calculate the yield to maturity of the bond using a calculator. i. 5.5% b. Calculate the duration of the bond two ways: i. Using a calculator. ii. Using a spreadsheet that you will turn in with your homework 1 Period Cash  Flow PV t*PV 0  \$  (978.65) (\$978.65) \$0.00  1  \$  50.00  \$47.39  \$47.39  2  \$  50.00  \$44.92  \$89.85  3  \$  50.00  \$42.58  \$127.74  4  \$  50.00  \$40.36  \$161.44  5  \$  1,050.00  \$803.39  \$4,016.9 5.50% \$978.65  \$4,443.3 Duration 4.5403220 7 2. Consider also JKL bonds, which just paid their annual coupon, have a 4% coupon rate, mature in 4 years, and have a yield to maturity of 5.4%. What is the price of the JKL bonds as a percentage of par? 2 66.975% =PV(0.054,4,40,-1000)/ 1000 Period Cash  Flow PV t*PV 0 (\$950.81) (\$950.81) \$0.00  1  \$  \$37.95  \$37.95

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
40.00  2  \$  40.00  \$36.01  \$72.01  3  \$  40.00  \$34.16  \$102.48  4  \$  1,040.00  \$842.70  \$3,370.7 5.40% \$950.81  \$3,583.2 Duration 3.76859184 3 3. If you own both XYZ and JKL, what would be the combined duration of the two bonds, using the single security approach?
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern