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Unformatted text preview: CHAPTER 6 1. Assume a yield to maturity of 8 percent. Compute the duration for the following bonds. Assume $100 par values. For the 12% coupon bond, compute the duration using the two duration formulas. Which formula is easiest to compute? (a) 10 years, zero coupon (b) 10 years, 8 percent coupon (c) 10 years, 12 percent coupon YTM = 8% ; par = $100 ; DUR = ? a. N = 10 ; C = 0 ; DUR = 10 Duration equals the maturity of 10. b. N = 10; C = 8% y ] ) y + (1 y)[1 + (1 = DURn bond par  9 7.246 = .08 ] ) (1.08 (1.08)[1 = DUR10 c. N = 10; C = 12% + ) y + (1 Par + y ) ) y (1 (1 c = P nn 84 126 = ) (1.08 1 + .08 ) (1.08 (1 12 = P 1010 . 00  (1) P ) y + (1 c/y par n + y ) y + (1 1 y y) + c(1 = DUR nn   7442 . 6 DUR 84 . 126 ) (1.08 .08 2/ 1 00 1 10 + .08 ) (1.08 1 .08 12(1.08) = DUR 1010 =   (2) 9 7.246 = .08....
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This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.
 Spring '08
 DUDLEY
 Debt

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