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A bond your company issued has par of $1000 and matures in 6 years.  It pays annual...

A bond your company issued has par of $1000 and matures in 6 years.  It pays annual coupons of $40 each.  Annual interest rates are now 3%.

  1. What is the value of the bond?
  2. Premium bond or discount bond?
  3. What is the Macauley’s Duration of the Bond?
  4. If you were to immunize this Bond, which you have booked as a liability, and you were going to use 1-year Zeroes and Perpetuities to match interest-rate change sensitivity risk, how much of each would you buy?

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ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

A,B.

C.

jeff jeffy answered 1 year ago
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