Requirement 1:
A bond with maturity of two years has the foll
owing cash flows: by the end of the first year:
C ; by the end of the second year: C+FV. The
yield per year (compounded continously) is y
(a). Calulate the bond's price, B.
(b). Calculate the duration of the bond,
D=-(1)/(B)(dB)/(dy)
(c). Calculate the Macaulay duration of this b
ond, D_(m)=\sum_(i=1)^n t_(i)((v_(i))/(B)). Is your result sa
me as in (b)?
(d). Now suppose y is not the yield per year
compounding continously, but the yield per y
ear that compounds just once in a year (by th
e end of each year). Then what is your answ
er for (a), (b), and (c)? What is the relationship
between (b) & (c)?
Requirement 2:
Now suppose the bond is a zero coupon bond that pays all the cash flows in the
end of the second year, and the cash flow paid is the face value of the bond, FV.
Then what your answer to questions (a), (b), (c), and (d)? Requirement 2:
Now suppose the bond is a zero coupon bond that pays all the cash flows in the end of the second year, and the cash flow paid is the face value of the bond, FV. Then what your answer to questions (a), (b), (c), and (d)?