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13 Cash flow I consists of three payments: A in 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments X in 6 periods and Y in 12 periods. As of now, at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that (a) the two sets of cash flows will have the same present value;

13 Cash flow I consists of three payments: A in 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments X in 6 periods and Y in 12 periods. As of now, at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that (a) the two sets of cash flows will have the same present value;

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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*7.2.13 Cash flow 1 consists of three payments: A in 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments: X in 6 periods and Y in 12 periods. As of now, at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that (a) the two sets of cash flows will have the same present value; (b) the two sets of cash flows have the same Macaulay duration at that time; and (c) the Macaulay duration one period from now is exactly 1 less than it is now.
Transcribed Image Text:*7.2.13 Cash flow 1 consists of three payments: A in 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments: X in 6 periods and Y in 12 periods. As of now, at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that (a) the two sets of cash flows will have the same present value; (b) the two sets of cash flows have the same Macaulay duration at that time; and (c) the Macaulay duration one period from now is exactly 1 less than it is now.
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