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a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 6%. Note: The face value of the bond is $1,000. (Do not round intermediate calculations. Round your answers to 3 decimal places.) b. What is the duration if the yield to maturity is 10%

Respuesta :

jepessoa

Answer:

A) the formula to calculate modified duration of bonds:

modified duration = [1 - (1 + y)⁻ⁿ] / y

modified duration = [1 - (1 + 6%)⁻³] / 6%  = 2.673 years

if you want to determine the Macaulay duration = modified duration x (1 + yield) = 2.673 years x 1.06 = 2.833 years

B)   modified duration = [1 - (1 + 10%)⁻³] / 10%  = 2.487 years

if you want to determine the Macaulay duration = modified duration x (1 + yield) = 2.487 years x 1.1 = 2.736 years

a. The duration should be 2.833 years.

b. The duration should be 2.736 years.

  • The calculation is as follows:

Modified duration = [1 - (1 + y)⁻ⁿ] ÷ y

= [1 - (1 + 6%)⁻³] ÷ 6%  

= 2.673 years

 Macaulay duration = modified duration × (1 + yield)

= 2.673 years × 1.06

= 2.833 years

B)   modified duration = [1 - (1 + 10%)⁻³] ÷ 10%  

= 2.487 years  

Macaulay duration = modified duration × (1 + yield)

= 2.487 years × 1.1

= 2.736 years

Learn more: brainly.com/question/16911495

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