You purchase a $100 face value U.S 10%, 30-year bond for $110 1. What is the dur

ID: 454655 • Letter: Y

Question

You purchase a $100 face value U.S 10%, 30-year bond for $110

1. What is the duration of the bond

2. what is the current yield of the bond? is it higher or lower than the bond’s ytm? why?

3. If you sold the bond a the end of 1 year what return would you have earned if its maturity rose by 50 basis points?

4. what is your cash flow yield if you sold the bond at the end of 5 years at a ytm of 1 ?

5. If you held held the bond for 10 years what return would you have earned (i.e RCY if your reinvestment rate (R) was 10% ?

1. the duration of the bond is 30 years

2. its yield is= (coupon rate+ (premium/ number of years)/ (present value+face vaue)/2

=Yield= (100+100/30)/ (100+110)/2

=103.33/105= 3.174

3. the current yield of the bond is 3.174%

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