Assume coupons are paid annually. Here are the prices of three bonds with 10-year maturities:
Bond Coupon % Price % 2 83 4 102 8 133
What is the duration of each bond?
Assume coupons are paid annually. Here are the prices of three bonds with 10-year maturities:
| Bond Coupon % | Price % |
| 2 | 83 |
| 4 | 102 |
| 8 | 133 |
What is the duration of each bond?
Related questions
Assume coupons are paid annually. Here are the prices of threebonds with 10-year maturities:
| Bond Coupon (%) | Price (%) |
| 7 | 89.50 |
| 9 | 108.50 |
| 10 | 139.50 |
a. What is the yield to maturity of each bond?(Do not round intermediate calculations. Enter your answersas a percent rounded to 2 decimal places.)
| Bond Coupon (%) | YTM |
| 7 | % |
| 9 | % |
| 10 | % |
b. What is the duration of each bond?(Do not round intermediate calculations. Round your answersto 2 decimal places.)
| Bond Coupon (%) | Duration |
| 7 | years |
| 9 | years |
| 10 | years |
2a) The following prices and maturities of zero coupon bonds are given below:
| Maturity (Years) | Price ($) |
| 1 | 925.38 |
| 2 | 890.00 |
| 3 | 816.30 |
| 4 | 735.03 |
i) A 10% coupon bond with a maturity of 3 years is currently selling at $1,080.07 in the market. The coupons are paid annually.
Strip the bond and determine whether there is an arbitrage opportunity. Clearly explain how you would profit from the arbitrage.
ii) Use the given zero coupon bonds to design a synthetic forward loan that starts 2 years from now (at the end of year 2), and is paid back 2 years later (at the end of year 4). Assume you are the lender in this transaction. How is the interest that you charge over the two years of this loan related to the implied forward rates?
2b) A pension plan will pay me $12,000 per year for a 6-year period, starting next year. My pension fund wants to immunize its position.
i) What is the duration of its obligation to me if the yield curve is flat at 5%?
ii) If the pension fund uses a 4-year zero coupon bonds and a perpetuity with yield to maturity of 5% p.a. to construct the immunized position, calculate the fraction of wealth that needs to be placed in each bond.
