3 and 2 deciamals please Consider the following. What is the duration of a two-y

Question

3 and 2 deciamals please

Consider the following.

What is the duration of a two-year bond that pays an annual coupon of 9 percent and whose current yield to maturity is 13 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

What is the expected change in the price of the bond if interest rates are expected to decline by 0.5 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

3 and 2 deciamals please

Consider the following.

Explanation / Answer

Answer 1 Using Financial calculator step 1 compute Price ar 13% Interest Using Financial calculator PMT=90 [Press ENTER] 9% of 1000 N=2 I/Y=13 FV=1000 Press CPT and PV PV= 933.28 At Ytm=13 bond price is $933.28 step 2 compute drop in 1% Interest Using Financial calculator PMT=90 [Press ENTER] 9% of 1000 N=2 I/Y=12 FV=1000 Press CPT and PV PV= 949.3 step 3 compute Increase in 1% Interest Using Financial calculator PMT=90 [Press ENTER] 9% of 1000 N=2 I/Y=14 FV=1000 Press CPT and PV PV= 917.67 Duration=(Increase in bond price-decrease in bond price)/2*Bond value in beginning *change in yield duration= (949.3-917.67)/(2*933.28*.01) duration= 1.695 Answer 2 If interest rate decline change in price=duration*change in Interest rate*old price Change in Price= 1.695*0.005*933.28 Change in Price= 7.9075 Change in bond price= 7.9075 when interest rate decrease price of bond increase Approximate change in price 7.91 Exact change in price Using Financial calculator PMT=90 [Press ENTER] 9% of 1000 N=2 I/Y=12.5 FV=1000 Press CPT and PV PV= 941.234 Change in price=New price-old price Change in price=941.234-933.275 Change in price= 7.96

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