Question
A company has to pay $100,000 5 years from now. The current market rate of interest is 6%. The company uses a 8.6% annual coupon
A company has to pay $100,000 5 years from now. The current market rate of interest is 6%. The company uses a 8.6% annual coupon bond redeemable at par after 6 years to fund this liability.
(a) Calculate the face value and the Macaulay duration of the bond.
(b) Is the bond sufficient to meet the liability when there is a one-time change in interest rate to 5.5% after 2 years?
PLEASE SHOW ALL WORK BY HAND, WITHOUT USING A FINANCE CALCULATOR OR EXCEL. I AM REQUIRED TO LEARN THIS BY HAND AS I AM NOT ALLOWED TO USE A FINANCE CALCULATOR OR EXCEL.
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Production And Operations Analysis
Authors: Steven Nahmias, Tava Lennon Olsen
7th Edition
1478623063, 9781478623069
