Using the following yield curve, calculate the Duration of: 8.25 year coupon bon

Question

Using the following yield curve, calculate the Duration of:

8.25 year coupon bond paying a semiannual coupon of 4.85% annually

4.5 year floating rate coupon bond paying a semiannual coupon with a spread of 75 basis points 0.75%

7.25 year floating rate coupon bond paying a semiannual coupon with a spread of 75 basis points 0.75% . Thr coupon determined at the last reset date was 4.50% annually.

t Z 0.25 0.9891 0.5 0.9798 0.75 0.9713 1 0.9633 1.25 0.9553 1.5 0.9473 1.75 0.9392 2 0.931 2.25 0.9227 2.5 0.9143 2.75 0.9059 3 0.8973 3.25 0.8888 3.5 0.8801 3.75 0.8714 4 0.8627 4.25 0.8538 4.5 0.845 4.75 0.8361 5 0.8272 5.25 0.8182 5.5 0.8093 5.75 0.8003 6 0.7913 6.25 0.7823 6.5 0.7733 6.75 0.7643 7 0.7554 7.25 0.7465 7.5 0.7376 7.75 0.7287 8 0.7199 8.25 0.7111 8.5 0.7024 8.75 0.6938 9 0.6852 9.25 0.6767 9.5 0.6683 9.75 0.6599 10 0.6516

Explanation / Answer

t Z Cash flow Period * cash flow PV of cash flow 1 0.9633 4.85 4.85 4.7 2 0.931 4.85 9.7 9.0 3 0.8973 4.85 14.55 13.1 4 0.8627 4.85 19.4 16.7 5 0.8272 4.85 24.25 20.1 6 0.7913 4.85 29.1 23.0 7 0.7554 4.85 33.95 25.6 8 0.7199 4.85 38.8 27.9 8.25 0.7111 101.2125 835.0 593.8 Total 733.9 Let the face vale be 100 Duration=733.9/100 7.339 years Ans

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