a.What is the price of each of the following bonds ($1,000 principal) if the cur
ID: 2768036 • Letter: A
Question
a.What is the price of each of the following bonds ($1,000 principal) if the current interest rate is 10 percent?
20 years
Round your answer to the nearest cent.
A?
B?
C?
D?
E?
F?
What is the duration of each bond? Round your answers to two decimal places.
A?
B?
C?
D?
E?
F?
Firm A Coupon 6% Maturity 10 years Firm B Coupon 6% Maturity 20 years Firm C Coupon 15% Maturity 10 years Firm D Coupon 15% Maturity 20 years Firm E Coupon 0% (zero coupon bond) Maturity 10 years Firm F Coupon 0% (zero coupon bond) Maturity20 years
Explanation / Answer
A c year interest present value@10% present value of cash flow present value of cash flow*time Value of Bond year interest present value@10% present value of cash flow present value of cash flow*time 1 60 0.909091 54.54545 54.54545 Effective annual rate 1 150 0.909091 136.3636 136.3636 2 60 0.826446 49.58678 99.17355 2 150 0.826446 123.9669 247.9339 3 60 0.751315 45.07889 135.2367 3 150 0.751315 112.6972 338.0917 4 60 0.683013 40.98081 163.9232 4 150 0.683013 102.452 409.8081 5 60 0.620921 37.25528 186.2764 5 150 0.620921 93.1382 465.691 6 60 0.564474 33.86844 203.2106 6 150 0.564474 84.67109 508.0265 7 60 0.513158 30.78949 215.5264 7 150 0.513158 76.97372 538.816 8 60 0.466507 27.99044 223.9235 8 150 0.466507 69.97611 559.8089 9 60 0.424098 25.44586 229.0127 9 150 0.424098 63.61464 572.5318 10 1060 0.385543 408.6759 4086.759 10 1150 0.385543 443.3748 4433.748 value of bond 754.2173 value of bond 1307.228 Duration sum of time*present value of cash flow/ present value 5597.587 Duration sum of time*present value of cash flow/ present value 8210.819 present value 754.14 present value 1307.1 Duration 7.422478 Duration 6.281707 B year interest present value@10% present value of cash flow present value of cash flow*time d 1 60 0.909091 54.54545 54.54545 year interest present value@10% present value of cash flow present value of cash flow*time 2 60 0.826446 49.58678 99.17355 1 150 0.909091 136.3636 136.3636 3 60 0.751315 45.07889 135.2367 2 150 0.826446 123.9669 247.9339 4 60 0.683013 40.98081 163.9232 3 150 0.751315 112.6972 338.0917 5 60 0.620921 37.25528 186.2764 4 150 0.683013 102.452 409.8081 6 60 0.564474 33.86844 203.2106 5 150 0.620921 93.1382 465.691 7 60 0.513158 30.78949 215.5264 6 150 0.564474 84.67109 508.0265 8 60 0.466507 27.99044 223.9235 7 150 0.513158 76.97372 538.816 9 60 0.424098 25.44586 229.0127 8 150 0.466507 69.97611 559.8089 10 60 0.385543 23.1326 231.326 9 150 0.424098 63.61464 572.5318 11 60 0.350494 21.02963 231.326 10 150 0.385543 57.83149 578.3149 12 60 0.318631 19.11785 229.4142 11 150 0.350494 52.57408 578.3149 13 60 0.289664 17.37986 225.9382 12 150 0.318631 47.79462 573.5355 14 60 0.263331 15.79988 221.1983 13 150 0.289664 43.44966 564.8455 15 60 0.239392 14.36352 215.4528 14 150 0.263331 39.49969 552.9956 16 60 0.217629 13.05775 208.924 15 150 0.239392 35.90881 538.6321 17 60 0.197845 11.87068 201.8016 16 150 0.217629 32.64437 522.3099 18 60 0.179859 10.79153 194.2475 17 150 0.197845 29.6767 504.5039 19 60 0.163508 9.810479 186.3991 18 150 0.179859 26.97882 485.6187 20 1060 0.148644 157.5622 3151.245 19 150 0.163508 24.5262 465.9978 value of bond 659.4575 20 1150 0.148644 170.9402 3418.803 value of bond 1425.678 Duration sum of time*present value of cash flow/ present value 6808.101 present value 659.38 Duration sum of time*present value of cash flow/ present value 12560.94 Duration 10.325 present value 1425.55 Duration 8.811297 Answer to E value of zero coupon bond fv/(1+r)^n 385.5433 duration Fv/(1+r)^n*time / pv 10 years Answer to F value of zero coupon bond fv/(1+r)^n 148.6436 duration Fv/(1+r)^n*time / pv 20 years
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