Please rank the duration of the following bonds and explain the reason: (4 points) Bond A:...

Please rank the duration of the following bonds and explain the reason: (4 points)
Bond A: 5-year bond, coupon rate of 3% selling at par
Bond B: 5-year bond, coupon rate of 3% selling at discount
Bond C: 10-year bond, coupon rate of 2% selling at par
Bond D: 10-year bond, coupon rate of 2% selling at premium

Expert Solution

	Term	coupon	yield	duration	ranking
1	5	3	3	4.71	2
2	5	3	4	4.736842	1
3	10	2	2	8.78	3
4	10	2	1.5	9.230769	4

Workings for duration is given below

Years T	NCF	PV@3%	Duration D	Convexity

NCF(1+0.03)TNCF(1+0.03)T	(PVT)(PVT)	D∗(T+1)(100)(1+0.03)2D∗(T+1)(100)(1+0.03)2

1	3	2.9126	2.9126	0.0549
2	3	2.8278	5.6556	0.1599
3	3	2.7454	8.2363	0.3105
4	3	2.6655	10.662	0.5025
5	3+100 =103	88.849	444.24	25.125
		100	471.7	26.15


Years T	NCF	PV@4%	Duration D	Convexity

NCF(1+0.04)TNCF(1+0.04)T	(PVT)(PVT)	D∗(T+1)(95.548177669)(1+0.04)2D∗(T+1)(95.548177669)(1+0.04)2

1	3	2.8846	2.8846	0.0558
2	3	2.7737	5.5473	0.161
3	3	2.667	8.001	0.3097
4	3	2.5644	10.258	0.4963
5	3+100 =103	84.658	423.29	24.576
		95.55	450	25.6


Years T	NCF	PV@2%	Duration D	Convexity

NCF(1+0.02)TNCF(1+0.02)T	(PVT)(PVT)	D∗(T+1)(100)(1+0.02)2D∗(T+1)(100)(1+0.02)2

1	3	2.9126	2.9126	0.0549
2	3	2.8278	5.6556	0.1599
3	3	2.7454	8.2363	0.3105
4	3	2.6655	10.662	0.5025
5	3	2.5878	12.939	0.7318
6	3	2.5125	15.075	0.9947
7	3	2.4393	17.075	1.2876
8	3	2.3682	18.946	1.6072
9	3	2.2993	20.693	1.9505
10	3+100 =103	76.642	766.42	79.466
		100	878.6	87.07

Years T	NCF	[email protected]%	Duration D	Convexity

NCF(1+0.015)TNCF(1+0.015)T	(PVT)(PVT)	D∗(T+1)(104.611092276)(1+0.015)2D∗(T+1)(104.611092276)(1+0.015)2

1	2	1.9704	1.9704	0.0366
2	2	1.9413	3.8826	0.1081
3	2	1.9126	5.7379	0.213
4	2	1.8844	7.5375	0.3497
5	2	1.8565	9.2826	0.5168
6	2	1.8291	10.975	0.7128
7	2	1.8021	12.614	0.9364
8	2	1.7754	14.203	1.1861
9	2	1.7492	15.743	1.4607
10	2+100 =102	87.89	878.9	89.706

jeff jeffy answered 3 years ago

Compute the duration for Bond C and rank the bonds on the basis of their price...

Compute the duration for Bond C and rank the bonds on the basis of their price volatility. The current rate of interest is 8 percent, so the prices of Bonds A and B are $1,000 and $1,268, respectively. Bond Coupon Term Duration A 8% 10 years 7.25 B 12% 10 years 6.74 C 8% 5 years ? Confirm your ranking by calculating the percentage change in the price of...

CFA Question- Rank the following bonds in order of descending duration Bond A: coupon 15%, Time...

CFA Question- Rank the following bonds in order of descending duration Bond A: coupon 15%, Time to Maturity is 20 years, Yield to Maturity is 10% Bond B: coupon 15%, Time to Maturity is 15 years, Yield to Maturity is 10% Bond C: coupon 0%, Time to Maturity is 20 years, Yield to Maturity is 10% Bond D: coupon 8%, Time to Maturity is 20 years, Yield to Maturity is 10% Bond E: coupon 15%, Time to Maturity is 15...

Q) duration is a measure of volatility of a bond. Which of the following bonds has...

Q) duration is a measure of volatility of a bond. Which of the following bonds has the greatest volatility based their respective duration? a)4.5% b)4.5 years . c) 6.5% d) 6.5 years Q) a DRIP a) is a new form of real rate of return bonds b) allows an investortor receive a stock dividend rather than a cash dividend c) allows an investor to purchase additional shares at a 10% discount d) is a dividend tax credit Q) when is...

Consider the following. a. What is the duration of a four-year Treasury bond with a 4...

Consider the following. a. What is the duration of a four-year Treasury bond with a 4 percent semiannual coupon selling at par? b. What is the duration of a three-year Treasury bond with a 4 percent semiannual coupon selling at par? c. What is the duration of a two-year Treasury bond with a 4 percent semiannual coupon selling at par? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Calculate the duration for each of following bonds or portfolio in (1)-4) and answer question (5)....

Calculate the duration for each of following bonds or portfolio in (1)-4) and answer question (5). A 10-year bond with 8% annual coupon and 8% yield to maturity. PLEASE EXPLAIN HOW YOU GOT EACH A 30-year bond with 2% annual coupon and 8% yield to maturity. 100-year bond with 9% annual coupon and 8% yield to maturity portfolio of bond (1) and (2), with 30.71% invested in bond (1) and 69.29% in bond (2). (Hint: Duration of a portfolio equals...

A mutual fund is holding a portfolio consists of four bonds. Duration of Bond A is...

A mutual fund is holding a portfolio consists of four bonds. Duration of Bond A is 1.22-year, of Bond B is 2.75-year, of Bond C is 3.11-year, of Bond D is 5.16. The proportion of Bond A in the portfolio is 30%, Bond B is 25%, Bond C is 15%, and the rest goes to Bond D. a) Which bond in the portfolio is exposed to the lowest interest rate risk? Briefly explain. b) What is the duration of the...

Show all work please Calculate the price and duration for the following bond when the going...

Show all work please Calculate the price and duration for the following bond when the going rate of interest is 4%. The bond offers 3.5% coupon rate, matures in 3 years and has a par value of $1,000. Show full calculations and fill the table below. YR PV of $ 1 Bond Cash Flows PV (Cash Flows) Year * Present Value of Cash Flow 1 2 3 3 Total Price = Duration What would be the new price if...

Explain what makes bonds more sensitive to discount rate changes, and how Duration measures bond sensitivity....

Explain what makes bonds more sensitive to discount rate changes, and how Duration measures bond sensitivity. Why does higher Duration mean greater sensitivity, and lower Duration less (explain by using the equation, in terms of the present value of the coupon and principle payments)?

Assuming equal concentrations and complete dissociation, rank the following aqueous solutions by their freezing points. Highest...

Assuming equal concentrations and complete dissociation, rank the following aqueous solutions by their freezing points. Highest freezing point: Lowest Freezing point:

Using excel, illustrate and check the following observations on the duration of bonds. 1. The duration...

Using excel, illustrate and check the following observations on the duration of bonds. 1. The duration of a zero-coupon bond equals its time to maturity 2. With time to maturity and yield to maturity held constant, a bond's duration and interest rate sensitivity are higher when the coupon rate is lower 3. With the coupon rate held constant, a bond's duration and interest rate sensitivity generally increase with time to maturity. Duration always increases with maturity for bonds selling at...

Question