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Bonds- Duration

An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12%

a) What is the duration for each of the bonds?
b) What is the relationship between duration and the amount of coupon interest that is paid?

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An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12%

a) What is the duration for each of the bonds?

Duration of bond
Duration is the average time of each payment
Duration=( 1 x PV(C1)+2 x PV(C2)+3 x PV(C3)+4 x PV(C4)+---)/V=
V=summation of PV ( C )
PV (C) is the present value of cash flow

Bond 1
Par value= ...

Solution Summary

Calculates duration of bonds and examines the relationship between duration and the amount of coupon interest that is paid.

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