Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 25, Problem 12QP
Summary Introduction
To calculate: Duration of the bond.
Duration:
It is an object used in
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Question 1. Duration and Banking
Consider a 5-year bond with annual coupon payments. The bond has a face value (prin-
cipal) of $100 and sells for $95. Its coupon rate is 3%. (The coupon rate is the ratio
between the coupon value and the face value). The face value is paid at the maturity
year in addition to the last coupon payment.
1. Calculate the bond's yield to maturity (YTM) and duration using its YTM.
2. Suppose the bond's YTM changes in the same way as a 5-year T-bill interest rate.
Use the bond's modified duration to evaluate the relative change in the 5-year bond's
value if the interest rate on 5-year T-bills falls by one basis point, that is, by 0.0001.
This part was extracted from the balance sheet of the First Bank of Australia:
Assets (Billion AUD)
Bond 80
Liabilities (Billion AUD)
Fixed-rate liabilities 60
where "Bond" here refers to the bond we specified above and the fixed-rate liabilities
(banks future payment obligations) have an average duration of 4 years and YTM of…
What is the Macaulay duration of a semi-annual bond with a coupon rate of 7 percent, five years to maturity, and a current price of $959? What is the modified duration?
Duration is __. years.
Modified duration is __ years.
How does the equation for valuing a bond change if semiannual payments are made? Find the value of a 10-year, semiannual payment, 10% coupon bond if nominal rd = 13%.
Chapter 25 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 25 - Prob. 1CQCh. 25 - Prob. 2CQCh. 25 - Prob. 3CQCh. 25 - Prob. 4CQCh. 25 - Prob. 5CQCh. 25 - Prob. 6CQCh. 25 - Option Explain why a put option on a bond is...Ch. 25 - Hedging Interest Rates A company has a large bond...Ch. 25 - Prob. 9CQCh. 25 - Prob. 10CQ
Ch. 25 - Prob. 11CQCh. 25 - Prob. 12CQCh. 25 - Prob. 13CQCh. 25 - Prob. 14CQCh. 25 - Hedging Strategies William Santiago is interested...Ch. 25 - Prob. 16CQCh. 25 - Prob. 1QPCh. 25 - Prob. 2QPCh. 25 - Prob. 3QPCh. 25 - Prob. 4QPCh. 25 - Prob. 5QPCh. 25 - Duration What is the duration of a bond with three...Ch. 25 - Duration What is the duration of a bond with four...Ch. 25 - Duration Blue Stool Community Bank has the...Ch. 25 - Prob. 9QPCh. 25 - Prob. 10QPCh. 25 - Prob. 11QPCh. 25 - Prob. 12QPCh. 25 - Prob. 13QPCh. 25 - Forward Pricing You enter into a forward contract...Ch. 25 - Forward Pricing This morning you agreed to buy a...Ch. 25 - Prob. 16QPCh. 25 - What is the monthly mortgage payment on Jerrys...Ch. 25 - Prob. 2MCCh. 25 - Prob. 3MCCh. 25 - Prob. 4MCCh. 25 - Suppose that in the next three months the market...Ch. 25 - Are there any possible risks Jennifer faces in...
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