Homework 3

# Homework 3 - MGMT 411 Fall 2009 MGMT 411 Homework 3 Due...

This preview shows page 1. Sign up to view the full content.

MGMT 411 Fall 2009 1 MGMT 411 Homework 3 Due October 2, 2009 Time Yield Curve 1 0.04 2 0.05 3 0.06 4 0.07 5 0.08 1. Given the yield curve above, find the price of the following 2 bonds. Assume that all coupons/payments are annual. Bond A: 5% coupon, 3 year maturity, \$1000 par value Bond B: 5 year \$2000 mortgage with a 7% interest rate (Note: find the pmt first) 2. Find the yield to maturity, current yield and the discount/premium for each bond above. Comment on the usefulness of the current yield measure of Bond B. Is it useful? Why or why not? 3. Calculate Macaulay’s Duration and Modified Duration for each of the bonds above. Note the time to maturity for each bond and the par value of each bond. Which Bond has a higher Duration? How can this be? Explain. Additionally, use Modified Duration to calculate the new price for each bond that would result from a 3% drop or a 3% rise in respective yields. 4. Use the yield curve above to calculate the one year forward rate at year 4. 5. Pretend today is October 2, 2009 and you are considering purchasing a bond that matures
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