Scribd Logo
Upload

Welcome to Scribd!

  • 22 views

    Quiz 1 Hasnat Khaliq BAF 173005: Answer

    Uploaded by

    Hamza Khaliq
    This document contains the solutions to several questions about calculating duration for coupon bonds and zero-coupon bonds. For a coupon bond, increasing the yield-to-maturity decreases the duration. For a zero-coupon bond, changing the yield-to-maturity does not affect the duration, which remains at 2. While changing yields affects coupon bonds by allowing for higher reinvestment income, it does not impact zero-coupon bonds since they have no interim cash flows.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Quiz 1 Hasnat Khaliq BAF 173005: Answer

    Uploaded by

    Hamza Khaliq
    22 views3 pages
    This document contains the solutions to several questions about calculating duration for coupon bonds and zero-coupon bonds. For a coupon bond, increasing the yield-to-maturity decreases the duration. For a zero-coupon bond, changing the yield-to-maturity does not affect the duration, which remains at 2. While changing yields affects coupon bonds by allowing for higher reinvestment income, it does not impact zero-coupon bonds since they have no interim cash flows.

    Original Title

    BAF 173005 Quiz 1

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document contains the solutions to several questions about calculating duration for coupon bonds and zero-coupon bonds. For a coupon bond, increasing the yield-to-maturity decreases the duration. For a zero-coupon bond, changing the yield-to-maturity does not affect the duration, which remains at 2. While changing yields affects coupon bonds by allowing for higher reinvestment income, it does not impact zero-coupon bonds since they have no interim cash flows.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views3 pages

    Quiz 1 Hasnat Khaliq BAF 173005: Answer

    Uploaded by

    Hamza Khaliq
    This document contains the solutions to several questions about calculating duration for coupon bonds and zero-coupon bonds. For a coupon bond, increasing the yield-to-maturity decreases the duration. For a zero-coupon bond, changing the yield-to-maturity does not affect the duration, which remains at 2. While changing yields affects coupon bonds by allowing for higher reinvestment income, it does not impact zero-coupon bonds since they have no interim cash flows.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 3

    QUIZ 1

    HASNAT KHALIQ
    BAF 173005
    QUESTION 1
    ANSWER

    Coupon Bond
    Par value = $1,000 Coupon = 0.10 Annual payments
    YTM = 0.08 Maturity = 2
    Time Cash Flow PVIF PV of CF PV*CF*T
    1 $100.00 0.92593 $92.59 $92.59

    2 $1,100.00 0.85734 $943.07 $1,886.15

    Price = $1,035.67
    Numerator = $1,978.74 Duration = 1.9106 = Numerator/Price

    YTM = 0.10
    Time Cash Flow PVIF PV of CF PV*CF*T
    1 $100.00 0.90909 $90.91 $90.91

    2 $1,100.00 0.82645 $909.09 $1,818.18

    Price = $1,000.00
    Numerator = $1,909.09 Duration = 1.9091 = Numerator/Price

    YTM = 0.12
    Time Cash Flow PVIF PV of CF PV*CF*T
    1 $100.00 0.89286 $89.29 $89.29
    2 $1,100.00 0.79719 $876.91 $1,753.83

    Price = $966.20
    Numerator = $1,843.11 Duration = 1.9076 = Numerator/Price

    ANSWER (b) Part

    If we Increase the yield-to-maturity it will decrease the duration of the bond

    ANSWER (C) Part


    Zero Coupon Bond
    Par value = $1,000 Coupon = 0.00
    YTM = 0.08 Maturity = 2
    Time Cash Flow PVIF PV of CF PV*CF*T
    1 $0.00 0.92593 $0.00 $0.00
    2 $1,000.00 0.85734 $857.34 $1,714.68

    Price = $857.34
    Numerator = $1,714.68 Duration = 2.0000 = Numerator/Price

    YTM = 0.10
    Time Cash Flow PVIF PV of CF PV*CF*T
    1 $0.00 0.90909 $0.00 $0.00
    2 $1,000.00 0.82645 $826.45 $1,652.89

    Price = $826.45
    Numerator = $1,652.89 Duration = 2.0000 = Numerator/Price
    YTM = 0.12
    Time Cash Flow PVIF PV of CF PV*CF*T
    1 $0.00 0.89286 $0.00 $0.00
    2 $1,000.00 0.79719 $797.19 $1,594.39

    Price = $797.19
    Numerator = $1,594.39 Duration = 2.0000 = Numerator/Price

    ANSWER no (d) Part


    Changing the yield-to-maturity does not affect the duration of the zero coupon bond.

    ANSWER no (e) part


    Increasing the yield-to-maturity on the coupon bond allows for a higher reinvestment income
    that more quickly recovers the initial investment. The zero-coupon bond has no cash flow until
    maturity.

    You might also like