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In: Accounting

Mordecai bought a 3-year 15% Treasury bond on 8 May 2020 at a yield of j2...

Mordecai bought a 3-year 15% Treasury bond on 8 May 2020 at a yield of
j2 = 18.6% p.a. Coupons can be reinvested at j2 = 14.0% p.a. The bond
will be redeemed at par on the maturity date (face value $100).
a. Calculate the total accumulated value at maturity generated
by this bond if Mordecai holds it to maturity and reinvests all coupon
payments received at the available rate.
b. Calculate the total realised compound yield (TRCY) of this
bond.
c. Decompose the total accumulated value generated by this
bond into: original purchase price, coupons, interest on coupons, and
capital gain/loss.
d. If Mordecai holds the bond for 2 years and sells it for a yield
of j2 = 18.8% p.a., calculate the holding period yield (HPY).
e. Calculate duration of this bond if it is held to maturity.

f.Use the concept of modified duration to estimate the price

of the bond if the yield to maturity increases to j2 = 18.7% p.a. im-
mediately after Mordecai buys the bond.

g. ]What fixed liability could Mordecai be reasonably confident
of paying off in 2 1/2 years’ time? Why?

I don't really know how to do part E,F and G, other parts are done

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Expert Solution

ekkarill92 answered 1 year ago
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