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Assume the following characteristics for a particular bond: A face value of $1,000; annual coupon payments...

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Finance

Assume the following characteristics for a particular bond: Aface value of $1,000; annual coupon payments of $60 (the firstpayment due in 1 year); an internal yieldto-maturity of 7%(compounded annually); and a three year term. (a) Compute theMacaulay duration of the bond. (b) Given your answer above, computethe approximate change in the bond’s value if the yield fell to6.5%. (c) Now compute the actually change in the bond’s value.Comment on the difference.

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3.6 Ratings (325 Votes)
aK NBond Price Coupon1 YTMk Par value1 YTMNk1K 3Bond Price 610001001 7100k 10001 71003k1Bond Price 97376PeriodCash FlowDiscounting factorPV Cash FlowDuration    See Answer
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Transcribed Image Text

Assume the following characteristics for a particular bond: Aface value of $1,000; annual coupon payments of $60 (the firstpayment due in 1 year); an internal yieldto-maturity of 7%(compounded annually); and a three year term. (a) Compute theMacaulay duration of the bond. (b) Given your answer above, computethe approximate change in the bond’s value if the yield fell to6.5%. (c) Now compute the actually change in the bond’s value.Comment on the difference.

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