Modified duration and the capital gains formula method

Assignment Help Financial Management

Reference no: EM13846894

A bond with 3 years remaining to maturity has an annual coupon rate of 8.5%, and a face value of $1,000. Assume the yield to maturity is 7.00% and answer the questions below. (You may use a financial calculator to get the PV of the bond in this problem – but show your calculator entries, i.e., 1000 FV, etc).

a) What is the duration of this bond?

b) If interest rates fall 0.15% from the given YTM, by what percent will the bond change in value? Show these 2 ways (using modified duration and the capital gains formula method).

Reference no: EM13846894

Questions Cloud

Write a program in java to implement the adt binary tree : Write a program in Java to implement the ADT Binary Tree part of whose definition is given below. You are also to write a driver program that demonstrates the correctness of your implementation by way of taking a series of commands from a text fil..

Valuate the hazard and its associated risk : Following steps 1-11 of the Hazard Analysis and Risk Assessment Guide in the course textbook (pp. 171-174), develop a risk assessment for a serious workplace hazard with which you are familiar, or use Addendum D to Chapter 11 (pp. 202-206) to help yo..

After-tax cost of preferred stock : Calculate the after-tax cost of preferred stock for Bozeman-Western Airlines Inc. which is planning to sell $10 million of $6.50 cumulative preferred stock to the public at a price of $50 a share. Issuance costs are estimated to be $2 a share. The co..

Describe how they influenced the behaviors and the choices : Describe how they influenced the behaviors and the choices that you or others made, and relate these to the methods for changing criminal behavior that you have studied in this phase?

Modified duration and the capital gains formula method : A bond with 3 years remaining to maturity has an annual coupon rate of 8.5%, and a face value of $1,000. If interest rates fall 0.15% from the given YTM, by what percent will the bond change in value? Show these 2 ways (using modified duration and th..

Consider a bank counter with four employees : Consider a bank counter with four employees (who each work 60 minutes in an hour) serving the customers. Deposit takes 5 minutes, cash withdraw takes 6 minutes, and electronic transfer takes 10 minutes. On average, there are 10 deposit transactions, ..

What is the difference between sex and gender : What is the difference between sex and gender? Explain how sex and gender identity is formed at each stage according to each theorist

Company produces a grain combine : The Farm-4-Less Tractor Company produces a grain combine (GC) in addition to both a large (LT) and small size tractor (SM). Its production manager desires to produce to customer demand using a mixed model production line. The current sequence of prod..

Best option worth today relative to the worst option : $100,000 right now and $50,000 every two years starting 3 years from now and ending 17 years from now (i.e. payments are at t = 0, t = 3, t = 5, … , t = 15, t = 17). $50,000 a year for 25 years with the first payment one year from today (i.e. paymen..

User Account

All Pages