Question
Consider a $1000 face value 2 years maturity bond paying 8% coupon rate per annum. Coupon is paid yearly basis. Market rate of return on
(a) The bond is currently selling at $920. Should you buy this bond? Explain the reason.
(b) Should the bond value increase next year? Explain why/why not.
(c) Calculate the duration of the bond. Explain why duration is usually presented as a negative figure.
(d) Forecast the price for next year. Assume that the current price is $920.
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Introduction to Operations Research
Authors: Frederick S. Hillier, Gerald J. Lieberman
10th edition
978-0072535105, 72535105, 978-1259162985
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