Fin 3403 301

Bond Duration (Homework)

Name___________________________________________________ID________Class________Section_____

Consider the following information of a bond:

Market Price (PV) = $960

Coupon Rate= 10%

Maturity (N) = 5years

Payment Frequency (M) = semi-Annual

Compute: (1. Show computations. 2. Do not type this assignment)

YTM

Duration

Modified Duration

If there is a 50 basis point increase in interest rate calculate

Change in price

Percentage change in price

N	PMT	CF	PVCF CF/(1+YTM)N	PVCF * N	Probability (PVCF/Price )	Semi-Annual (Probability * PMT)	Duration (Probability * N)
1
2
3
4
5
6
7
8
9
10

1. Compute YTM

FV =

PV =

PMT = Coupon Rate * FV/M =

N * M =

CPT I (YTM) = SemiAnnual YTM =

Annual YTM = Semi-Annual *2 =

2. Compute Duration

A. Annual Duration (from table) =

B. Annual Duration = (Sum of PVCF * N) / (Sum of PVCF) =

C. Semi Duration = (Annual Duration /2) =

3. Compute Modified Duration (MD)

a. Annual MD = Annual Duration /(1+YTM)

B. SemiAnnual MD = Annual Duration / 1 + (YTM/2) =

4. Change in Price (50 basis point increase in interest rate)

Ending Price Beginning Price = Change in Price

Note: Beginning Price Ending Price

FV = FV =

PV (Price) = CPT PV (Price) =

PMT = PMT =

N = N =

CPT YTM = YTM =

. Percentage change in price = (Change in Price/Beginning Price) 100