1. Consider a 7-year, 5% semiannual-pay bond that matures on September 15, 2020, which is purchased on January 3, 2014. The coupon payments are made on March 15 and September 15 each year. The yield-to-maturity is 5.00% quoted on a street-convention (30/360) semiannual bond basis. Compute the bond's Macaulay duration at time of purchase. Lur 1+r+fNx(c-r)] D={comment}-(4) 7 2. Using the bond in question 1, estimate its modified duration using the approximation formula. Compute PV- and PV+ by decreasing and increasing yields by 5 bps. AMD = (PV-)-(PV) 2x(AY ield)x(PV) Given that the yield-to-maturity is 5.00%, the full price (PV) of a 7-year, 5% semiannual-pay corporate bond (maturing on September 15, 2020 and settling on January 3, 2014) is calculated as: N = 14; PMT = $2.50; FV = -$100; 1/4 = 2.5%; CPT PV; PV = $100 PV, = $100 x (1.025)(108/180) = $101.492586 To compute PV+ and PV-raise and lower the annual yield-to-maturity by 5 bps (from 5.00% to 5.05% and from 5.00% to 4.95%). The yield per semiannual period would therefore rise from 2.50% to 2.525% and decrease from 2.5% to 2.475%. Calculate PV+ and PV- flat and full values. Use the AMD formula to estimate change in the value of the bond. 1. Consider a 7-year, 5% semiannual-pay bond that matures on September 15, 2020, which is purchased on January 3, 2014. The coupon payments are made on March 15 and September 15 each year. The yield-to-maturity is 5.00% quoted on a street-convention (30/360) semiannual bond basis. Compute the bond's Macaulay duration at time of purchase. Lur 1+r+fNx(c-r)] D={comment}-(4) 7 2. Using the bond in question 1, estimate its modified duration using the approximation formula. Compute PV- and PV+ by decreasing and increasing yields by 5 bps. AMD = (PV-)-(PV) 2x(AY ield)x(PV) Given that the yield-to-maturity is 5.00%, the full price (PV) of a 7-year, 5% semiannual-pay corporate bond (maturing on September 15, 2020 and settling on January 3, 2014) is calculated as: N = 14; PMT = $2.50; FV = -$100; 1/4 = 2.5%; CPT PV; PV = $100 PV, = $100 x (1.025)(108/180) = $101.492586 To compute PV+ and PV-raise and lower the annual yield-to-maturity by 5 bps (from 5.00% to 5.05% and from 5.00% to 4.95%). The yield per semiannual period would therefore rise from 2.50% to 2.525% and decrease from 2.5% to 2.475%. Calculate PV+ and PV- flat and full values. Use the AMD formula to estimate change in the value of the bond