Question

An insurance company is analyzing the following three bonds, each with five years to maturity, annual coupon payments, and duration as the measure of interest rate risk. What is the duration of each of the three bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Duration of the bond a. $10,000 par value, coupon rate-8%, 6-0.10 b. $10,000 par value, coupon rate-10%, rb-0.10 c, $10,000 par value, coupon rate-12%, rb-0.10 years

0 0
Add a comment Improve this question Transcribed image text
Answer #1

(a)

10000 Bond Cash Flow Time of Cash Flow PV Factor at YTM PV of Bond Cash Flow PV as proportion of Bond PriceDxF 1 Bond Par Value (in $) 2 Annual coupon (in %) 3 Maturity (in years) 4 YTM (in %) 5 Coupon Frequency 800 800 800 800 10800 727.27 661.16 601.05 546.41 6705.95 0.079 0.072 0.065 0.059 0.726 0.079 0.143 0.195 0.236 3.628 4.281 3.892 0.826446281 0.751314801 4 0.683013455 0.620921323 10 Annual Bond Price 9241.84 Macaulays Duration in years) Modified Duration

(b)

1 Bond Par Value (in 10000 Bond Cash Flow Time of Cash Flow 2 Annual coupon (in %) 3 Maturity (in years) 4 | YTM (in %) 5 Coupon Frequency Annual 6 PV Factor at YTM PV of Bond Cash Flow PV as proportion of Bond PriceDx F 10 1000 1000 1000 1000 11000 0.826446281 0.751314801 0.683013455 0.620921323 909.09 826.45 751.31 683.01 6830.13 0.091 0.083 0.075 0.068 0.683 0.091 0.165 0.225 0.273 3.415 4.170 3.791 10 4 Bond Price 10000.00 Macaulays Duration in years) Modified Duration

Bond Cash Flow SBS2/100)B1 (SB$2/100)) (SB$1) D2+1) ISB$2/100)) (SB$1) D3+1) 1 Time of Cash Flow PV Factor at YTM PV of Bond Cash Flow Bond Par Value (in $) 2 10000 V as proportion of Bond Price Annual coupon (in %) | 10 3 Maturity (in years)5 4 YTM (in %) (1/(1+(SB$4/100)M (E2 C2) (E2/1+SB$4/100) (E3 C3) (F2/SF$7) (F3/SFS7) (F4/SF$7) G2 D2) (G3*D3) 10 Annual (SB$2/100)B$1 (D4+1) (G5DS) (G6 D6) -SUM(H2:H6) (H7/(1+1SB$4/100)) 5 Coupon Frequency 10000+C5) Bond Price -SUM(F2:F6) Macaulays Duration (in years) Modified Duration

(c)

Bond Cash Flow Tme of Cash FlowPV Factor at YTM PV of Bond Cash Flow ((SB$2/100) (SBS1)1 PV as proportion of Bond Price 1 Bond Par Value (in S)10000 2 Annual Coupon (in %) 12 D x F -11+SB$4/100) E2 C2) (F2/SFS) (F3/SF$7 Maturity (in years) 4 YTM (in %) 5 Coupon Frequency B2/100)B1) D2+1 IB$2/100) (SB$1) D3+1) G3 D3) (G4 D4) 10 AnnualSB$2/10O))(SB$1) D4+1) F5/SFS (10000+C5 Bond Price SUME2-F6) Macaulays Duration (in years) Modified Duration -SUM(H2:H6) イH7/(1+($B$4/100)))

Add a comment
Know the answer?
Add Answer to:
An insurance company is analyzing the following three bonds, each with five years to maturity, annual...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • An insurance company is analyzing the following three bonds, each with five years to maturity, annual...

    An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as the measure of interest rate risk. What is the duration of each of the three bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Duration of the bond $10,000 par value, coupon rate-9.5%, rb-0.15 |$10,000 par value, coupon rate 11.5%, rb 0.15 |$10,000 par value, coupon rate-13.5%, rb-0.15 4.01 years 3.91...

  • Henley Corporation has bonds on the market with 10.5 years to maturity, a YTM of 5.7...

    Henley Corporation has bonds on the market with 10.5 years to maturity, a YTM of 5.7 percent, a par value of $1,000, and a current price of $945. The bonds make semiannual payments. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate % You purchase a bond with an invoice price of $1,043. The bond has a coupon rate...

  • Gabriele Enterprises has bonds on the market making annual payments, with nine years to maturity, a...

    Gabriele Enterprises has bonds on the market making annual payments, with nine years to maturity, a par value of $1,000, and selling for $966. At this price, the bonds yield 6.8 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate

  • Vulcan, Inc., has 7.8 percent coupon bonds on the market that have 7 years left to maturity. The bonds make annual paym...

    Vulcan, Inc., has 7.8 percent coupon bonds on the market that have 7 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 9.8 percent, what is the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current bond price

  • Big Canyon Enterprises has bonds on the market making annual payments, with 14 years to maturity,...

    Big Canyon Enterprises has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a price of $972. At this price, the bonds yield 8.4 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate

  • Big Canyon Enterprises has bonds on the market making annual payments, with 14 years to maturity,...

    Big Canyon Enterprises has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a price of $958. At this price, the bonds yield 8.9 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate

  • Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a...

    Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $958. At this price, the bonds yield 6.4 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  • Parkway Void Co. issued 14-year bonds two years ago at a coupon rate of 9.7 percent....

    Parkway Void Co. issued 14-year bonds two years ago at a coupon rate of 9.7 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Lion Corp. has a $5,000 par value bond outstanding with a coupon rate of 4.8 percent paid semiannually and 10 years to maturity. The yield to maturity...

  • Big Canyon Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000,...

    Big Canyon Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000, and a price of $969. At this price, the bonds yield 8.1 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  • Henley Corporation has bonds on the market with 14.5 years to maturity, a YTM of 10.2...

    Henley Corporation has bonds on the market with 14.5 years to maturity, a YTM of 10.2 percent, a par value of $1,000, and a current price of $953. The bonds make semiannual payments What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT