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Show work 3. Suppose today you purchase a seven-year maturity, 5 percent coupon bond (paid annually) that is priced to yield 7.38 percent. a. The
Show work 3. Suppose today you purchase a seven-year maturity, 5 percent coupon bond (paid annually) that is priced to yield 7.38 percent. a. The price and duration of the bond are: Seven-year Bond: Par value $1,000 Coupon rate 590 Annual payments r 7.38% Maturity 7 years 1.000 50.000 0.931 2.000 50.000 3.000 50.000 4.000 50.000 5.000 50.000 6.000 50.000 7.000 1050.000 46.564 46.564 43.363 86.727 40.383 121.149 0.867 0.808 0.752 0.700 35.023 175.115 32.616 195.696 0.000 065235.023 5043 0.607 637.860 4465.021 P-$873.417 5240.702 Duration- 6.000 b. If interest rates rise to 8 percent the day after you purchase and remain at 8 percent, show that the bond that initially had a YTM of 7.38% and your investment horizon is 6.00 years (Duration of the bond), show that you will still earn a 7.38 percent yield on your investment over your time horizon of 6 years. Value of bond at end of 6.0 years: PV (S50+$1,000)/(1.08) S Future value of interest payments at end of 6 years: $221.48 Future value of interest payments at end of 6 years: 50 (1+0.09)-1s 0.08 Future value of all cash flows at n 6 years. Coupon interest payments over six vears S300.00
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