Nhw9a - Homework 9 1 Using a two year semiannual 8 coupon bond 1000 par with a 5 YTM For this question find all answers to at least the 6th decimal

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Homework 9 1. Using a two year semiannual 8% coupon bond, 1000 par, with a 5% YTM. For this question find all answers to at least the 6 th decimal place. A. Calculate the price of this bond P 0 =(40/.025)(1-1/(1+.025)^4)+1000/(1+.025)^4= 1056.429613 B. Calculate duration and modified duration D= (.5)*(40/(1+.025))/P 0 + (1)*(40/(1+.025)^2)/P 0 + (1.5)*(40/(1+.025)^3)/P 0 + (2)*(1040/(1+.025)^4)/P 0 Slove for D using P 0 from above: D= 1.890971298 years or 2(1.8684004)=3.781942596 periods 3.781942596 /(1+.025)= D*(modified duration) D*= 3.689700094 periods C. Using modified duration calculate Change in p over p for a change in y of 1% and 5%. -3.689700094 (.01/2)= -.0184485005 -3.645659317 (.05/2)= -.0922425024 D. Price the same bond with a YTM of 6% and 10% as you did in part A. P 0 =(40/.03)(1-1/(1+.03)^4)+1000/(1+.03)^4= 1037.170984 P 0 =(40/.05)(1-1/(1+.05)^4)+1000/(1+.05)^4= 964.540495 E. Use the answer from part D to calculate the actual change in p over p, compare this answer for 1% and 5%, with the answers to part C. For 1% change
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This note was uploaded on 10/15/2011 for the course ECON 171 taught by Professor Hull during the Spring '09 term at Brandeis.

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Nhw9a - Homework 9 1 Using a two year semiannual 8 coupon bond 1000 par with a 5 YTM For this question find all answers to at least the 6th decimal

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