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Q.20I

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Essentials Of Investments
Found in: Page 362
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Find the bond duration with a settle ement date of May 27, 2012, and a maturity date of November 15, 2021. The bond’s coupon rate is 7%, and the bond pays coupons semi-annually.

The bond is selling at a yield to maturity of 8%. You can use Spreadsheet 11.2, available at www.mhhe.com/bkm; link to Chapter 11 material.

Answer

Macaulay Duration

6.965883415

Modified Duration

6.697964822

See the step by step solution

Step by Step Solution

Step by Step Solution Step 1: Given information

Settlement Date

27-05-2010

Maturity Date

15-11-2019

Coupon rate

0.07

Yield to maturity

0.08

Coupons per year

2

Step 2: Calculation of duration of the bond

To calculate the bond’s duration in excel, we can use the formulae given in the screenshot.

S.no.

Inputs

1

Settlement Date

27-05-2012

2

Maturity Date

15-11-2021

3

Coupon rate

0.07

4

Yield to maturity

0.08

5

Coupons per year

2

Outputs

Macaulay Duration

6.965883415

Modified Duration

6.697964822

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