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Chapter 21

# Chapter 21 - UN-16C A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

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UN-16C Page 1 BASIC IMMUNIZATION EXAMPLE WITH 3 BONDS Yield to maturity 6% Bond 1 Bond 2 Bond 3 Coupon rate 6.70% 6.988% 5.90% Maturity 10 15 30 Face value 1,000 1,000 1,000 Bond price \$1,051.52 \$1,095.96 \$986.24 Face value equal to \$1,000 of market value \$951.00 \$912.44 \$1,013.96 Duration #MACRO? #MACRO? #MACRO? =dduration(B7,B6,\$B\$3,1) New yield to maturity 6% Bond 1 Bond 2 Bond 3 Bond price \$1,000.00 \$1,041.62 \$988.53 <-- =-PV(\$B\$19,D7-10,D6*D8)+D8/(1+\$B\$19)^(D7-10) Reinvested coupons \$883.11 \$921.07 \$777.67 <-- =-FV(\$B\$19,10,D6*D8) Total \$1,883.11 \$1,962.69 \$1,766.20 Multiply by percent of face value bought 95.10% 91.24% 101.40% Product \$1,790.85 \$1,790.85 \$1,790.85 data table Bond 1 Bond 2 Bond 3 0% \$1,588.18 \$1,868.87 \$2,808.66 1% \$1,617.63 \$1,844.71 \$2,536.42 2% \$1,648.69 \$1,825.14 \$2,315.61 3% \$1,681.45 \$1,810.05 \$2,137.23 4% \$1,716.00 \$1,799.35 \$1,994.02 5% \$1,752.43 \$1,792.97 \$1,880.14 6% \$1,790.85 \$1,790.85 \$1,790.85 7% \$1,831.35 \$1,792.95 \$1,722.34 8% \$1,874.05 \$1,799.26 \$1,671.53 9% \$1,919.06 \$1,809.76 \$1,635.92 10% \$1,966.49 \$1,824.46 \$1,613.46 11% \$2,016.48 \$1,843.37 \$1,602.53 12% \$2,069.16 \$1,866.53 \$1,601.79 13% \$2,124.66 \$1,893.98 \$1,610.17 14% \$2,183.12 \$1,925.77 \$1,626.82 15% \$2,244.70 \$1,961.98 \$1,651.05 A B C D E F G H I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

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THE IMMUNIZATION PROBLEM Illustrated for the 30-year bond. When the interest rate increases: When the interest rate decreases: 0 Year 10: Future obligation of \$1,790.85 due. 30 Buy \$1,014 face value of 30-year bond.
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Chapter 21 - UN-16C A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

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