Use the cash flows of a portfolio of the following three bonds to calculate the yield...

Use the cash flows of a portfolio of the following three bonds to calculate the yield to maturity of the portfolio. Each bond has a face value of $1,000. Use the cash flows and yield to maturity to calculate the duration of the portfolio.

a. three-year zero-coupon bond with 5% yield,

b. five-year zero-coupon bond with 7% yield,

c. seven-year zero-coupon bond with 6% yield.

Verify your portfolio duration calculation using the weighted average of the individual bond durations.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

SHORT CUT FOR PV FACTOR = 1/(1+r)^n

FOR EXAMPLE : FOR 3 YEAR BOND = 1/(1+0.05)^3 = 0.863838

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Calculate the yield to maturity and the duration of the following portfolio of bonds. one year...

Calculate the yield to maturity and the duration of the following portfolio of bonds. one year T-bill yielding 4.65% Three-year AAA-rated bond paying semiannual coupons at 5% with a yield of 5.25% Two-year BBB-rated bonds paying semiannual coupons at 5.5% with a yield of 6.75%

Use the following information to develop a spreadsheet model that will calculate the free cash flows...

Use the following information to develop a spreadsheet model that will calculate the free cash flows and the value of the equity for the company. Cost of capital 12% Most recent year’s sales $1000 Nonoperating assets $100 Interest-bearing debt $250 Operating profit margin 12% Working capital/sales 35% Fixed assets/sales 20% Noninterest-bearing Current liabilities/sales 10% Tax rate 40% Forecasted sales growth Years 1␣2 12% Years 3␣5 8% 6␣N 4%

Use the following cash flows to calculate the NPV, IRR, PI. The firm's WACC is 6%....

Use the following cash flows to calculate the NPV, IRR, PI. The firm's WACC is 6%. Y0 = ($1,500), Y1= $600, Y2 = $700, Y3 = $500. Determine which statement is true. a) NPV = 108.84; IRR = 9.99%; PI = 1.07 b) NPV = 108.84; IRR = 10.47%; PI = 1.07 c) NPV = 108.84; IRR = 9.99%; PI = 0.0726 d) NPV = 300; IRR = 9.99%; PI = 1.20 Please Explain

Use the following information to answer the next three questions. Consider the following cash flows: Year...

Use the following information to answer the next three questions. Consider the following cash flows: Year Cash Flow 0 -$2,110,000 1 1,000,000 2 450,000 3 790,000 4 890,000 Assume a discount rate of 17.5 percent. What is the payback period? Round your answer to two decimal places. What is the net present value (NPV) rounded to the nearest dollar? What is the internal rate of return? please show work.

Use the following information to answer the next three questions. Consider the following cash flows: Year...

Use the following information to calculate: A) Annual Cash Flows for years 1-6; B) the Initial...

Use the following information to calculate: A) Annual Cash Flows for years 1-6; B) the Initial Outlay; C) Depreciable Base; D) Depreciation Expense; E) Proceeds from Sale of Equipment (aka Cash Flow from Sale); F) the CF Total from the Terminal Year 6; G) the Net Present Value (NPV) of the Cash Flows for years 1-6; and H) the IRR (Internal Rate of Return) The answers to this question should be listed from A to H, with their corresponding values...

Consider the following cash flows: Cash Flows ($) C0 C1 C2 −8,450 6,200 21,400 a. Calculate...

Consider the following cash flows: Cash Flows ($) C0 C1 C2 −8,450 6,200 21,400 a. Calculate the net present value of the above project for discount rates of 0, 50, and 100%. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) NPV @ 0% $ NPV @ 50% $ NPV @100% $ b. What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest...

Calculate the IRR for the following cash flows. You must show trial-and-error methodology and use interpolation...

Calculate the IRR for the following cash flows. You must show trial-and-error methodology and use interpolation to find the IRR to 2 decimal points to get credit. Year 0 1 2 3 4 5 6 7 8 NetCash -35,700 +8,000 +8,000 +8000 +8,000 +8,000 +8,000 +8,000 +2,000 Flow, $ -2,000

Use the following information to answer the next three questions. Consider the cash flows from two...

Use the following information to answer the next three questions. Consider the cash flows from two mutually exclusive projects: Cash Flow Year Project A Project B 0 -$470,000 -$460,000 1 $120,000 $392,000 2 $210,000 $110,000 3 $375,000 $120,000 The appropriate discount rate is 11.7%. Calculate the net present value (NPV) for both projects, and determine which project should be accepted based on NPV. Round both NPVs to the nearest dollar. Calculate the internal rate of return (IRR) for both projects,...

Calculate the yield to maturity on the following bonds: a. A 9.2 percent coupon (paid semiannually)...

Calculate the yield to maturity on the following bonds: a. A 9.2 percent coupon (paid semiannually) bond, with a $1,000 face value and 17 years remaining to maturity. The bond is selling at $975. b. An 8.2 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $905. c. An 11.2 percent coupon (paid annually) bond, with a $1,000 face value and 6 years remaining to maturity. The bond...

Subjects