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Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 5% pa. The bonds have a face value of $150,000 and an effective annual coupon rate of 12% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting. a) Complete the table for your colleague. Give your answers to 4 decimal places. Amount Cash flow ($) Present value of the cash flow (PVCF) Weight (PVCF/price) 1 18,000 17,142.8571 0.0877 2 18,000 16,326.5306 0.0835 3 18,000 15,549.0768 0.0796 4 18,000 14,808.6445 0.0758 5 b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places. D= years c) If the yield were to decrease immediately, the duration of the bonds would: O increase O decrease O remain unchanged

Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 5% pa. The bonds have a face value of $150,000 and an effective annual coupon rate of 12% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting. a) Complete the table for your colleague. Give your answers to 4 decimal places. Amount Cash flow ($) Present value of the cash flow (PVCF) Weight (PVCF/price) 1 18,000 17,142.8571 0.0877 2 18,000 16,326.5306 0.0835 3 18,000 15,549.0768 0.0796 4 18,000 14,808.6445 0.0758 5 b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places. D= years c) If the yield were to decrease immediately, the duration of the bonds would: O increase O decrease O remain unchanged

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 5% pa. The bonds have a face value of $150,000 and an effective annual coupon rate of 12% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting. a) Complete the table for your colleague. Give your answers to 4 decimal places. Amount Cash flow ($) Present value of the cash flow (PVCF) Weight (PVCF/price) 1 18,000 17,142.8571 0.0877 2 18,000 16,326.5306 0.0835 3 18,000 15,549.0768 0.0796 4 18,000 14,808.6445 0.0758 5 b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places. D= years c) If the yield were to decrease immediately, the duration of the bonds would: O increase O decrease O remain unchanged
Transcribed Image Text:Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 5% pa. The bonds have a face value of $150,000 and an effective annual coupon rate of 12% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting. a) Complete the table for your colleague. Give your answers to 4 decimal places. Amount Cash flow ($) Present value of the cash flow (PVCF) Weight (PVCF/price) 1 18,000 17,142.8571 0.0877 2 18,000 16,326.5306 0.0835 3 18,000 15,549.0768 0.0796 4 18,000 14,808.6445 0.0758 5 b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places. D= years c) If the yield were to decrease immediately, the duration of the bonds would: O increase O decrease O remain unchanged
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