Question

(a) A bond has a coupon rate of 4.5%, a maturity date of 1 June 2019, a current value of £96.00 and coupon frequency is annual. If today is 1 June 2016, calculate the current yield, the yield to maturity and the duration of the bond.

(b) Critically assess the important assumptions made when you calculate the yield to maturity.

(c) Identify the three most important determinants of the price of a bond and describe the effect of each determinant.

Answer #1

Answer for a)

Current yield can be calculated as =4.5/96=4.6875%

Current yield to maturity can be calculated as

96=4.5/(1+r)+4.5/(1+r)^2+104.5/(1+r)^3

Then r=6%

Duration of Bond

(4.5/(1.06)+9/1.06^2+13.5/1.06^3+300/1.06^3)/96=2.8695 years

We equalise market price with discounted future payoff of bond that interest rate ia called as YTM means yield to maturity

Answer for c

Price, Yield to Maturity and Duration of Bond

Price increase will decrease the chances of more appreciation hence interest rate will decrease

Price and YTM have inverse relationship.Duration of bond says in how many years the amount invested will be recovered.

Higher the Duration of Bond risky the bond is and vice versa

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5%, and the bond pays coupons semiannually. The bond is selling at
a yield to maturity of 6%. (Do not round intermediate calculations.
Round your answers to 4 decimal places.)
Macaulay duration =
Modified duration =

Find the duration of a bond with settlement date June 16, 2016,
and maturity date December 25, 2025. The coupon rate of the bond is
5%, and the bond pays coupons semiannually. The bond is selling at
a yield to maturity of 6%. (Do not round intermediate calculations.
Round your answers to 4 decimal places.)
Macaulay duration =
Modified duration =

A 3 year from maturity bond with a 4.5% coupon rate is trending
at a yield of 3.5%. What is the bonds Macaulay duration to 4
decimal places?

BOND TYPE: Corporate,
YIELD-TO-MATURITY: 5 percent
ANNUAL COUPON RATE: 5 percent
COUPON FREQUENCY: Semi - Annual
MATURITY DATE: Today’s Date with the year set to 4 years from
now. (i.e. If today is July 21, 2019, then it should be July 21,
2023)
PAR VALUE: $1000.00
QUANTITY: 1
SETTLEMENT DATE: Today's date (i.e. July 21, 2019).
Compute the price of this bond using the formula, the formula
that computes the present value of future cash flows of the bond,
using...

A)
Today is February 15, 2008
Type. Issue Date. Price. Coupon Rate.
Maturity Date. YTM. Current
Yield. Rating.
Note Feb 2003. ? 6.75% 2-15-2013. 5.532%. ------- AAA
What is the price in dollars of the February 2003 Treasury note
with semiannual payment if its par value is $100,000? What is the
current yield of this note?
B)
Today is February 15, 2008
Type.
Issue. Date.
Price (per $100 par value)
Coupon
Rate.
Maturity
Date.
YTM.
Current
Yield....

A bond with a yield to maturity of 3% and a coupon rate of 3%
has 3 years remaining until maturity. Calculate the duration and
the modified duration for this bond assuming annual interest
payments and a par value of $1,000. Why is the duration of this
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at in the notes that had a duration of 2.7 years? If the required
market yield on this bond increases to...

A 20-year, 6.500% annual payment bond settles on a coupon date.
The bond's yield to maturity is 9.400%.
(a) What is the bond’s Macauley Duration (show your
work, like you did in problem (16) above.)
(b) What is the bond’s approximate modified duration? Use yield
changes of +/- 30 bps around the yield to maturity for your
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(c) Calculate the approximate convexity for the bond.
(d) Calculate the change in the full bond price for a 40 bps
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A bond has a maturity date of 5 years, an annual coupon rate of
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C. What is the Modified Duration of the bond?

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maturity, and is currently priced to yeild 6%.Calculate the
following:
a)Macaulay duration
b) Modified duration
c)Effective duration
d)Percentage change in price for a 1% increase in the yield to
maturity

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