{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 20

# Chapter 20 - UN-15B A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

This preview shows pages 1–2. Sign up to view the full content.

UN-15B BASIC DURATION CALCULATION YTM 7% Year 1 70 0.0654 130 0.0855 2 70 0.1223 130 0.1598 3 70 0.1714 130 0.2240 4 70 0.2136 130 0.2791 5 70 0.2495 130 0.3260 6 70 0.2799 130 0.3657 7 70 0.3051 130 0.3987 8 70 0.3259 130 0.4258 9 70 0.3427 130 0.4477 10 1070 5.4393 1130 4.0413 Bond price Duration Bond price Duration \$1,000 7.5152 \$1,421 6.7535 =NPV(B3,B6:B15) =SUM(F6:F15) Excel formula 7.5152 <-- =DURATION(DATE(1996,12,3),DATE(2006,12,3),7%,B3,1) Approximating Price Changes Using Duration Actual Bond D P A -47.61 7.5152 \$1,000 0.007 -49.17 <-- =-C28*D28*E28/(1.07) B -60.92 6.7535 \$1,421 0.007 -62.80 Using Excel's MDuration formula: MDuration of bond A 7.0236 <-- =MDURATION(DATE(1996,12,3),DATE(2006,12,3),7%,7%,1) 0.007 Bond price \$1,000.00 49.17 MDuration of bond B 6.3117 <-- =MDURATION(DATE(1999,10,31),DATE(2009,10,31),13%,7%,1) 0.007 Bond price 1,421 62.80 <-- =C42*C41*C40 (in this case--10 years). Babcock's formula N 10 Bond maturity r 7% Current market interest rate C 13% Bond coupon Price 1,421.41 <-- =PV(B51,B50,-B52*1000)+1000/(1+B51)^B50 y 9.15% Current yield PVIF(r,N) 7.02 <-- =PV(B51,B50,-1) D 6.7535 <-- =B50*(1-B54/B51)+B54/B51*B55*(1+B51) C t,A t*C t,A /P A *(1+YTM) t C t,B t*C t,B /P B *(1+YTM) t P r -DP r/(1+r) r -DP r/(1+r) Product of 3 terms above = -DP r/(1+r) r -DP r/(1+r) Note that the formulas in cells C35 and C40 use different dates! This doesn't matter in the Excel functions

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

View Full Document
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