1) A two-year, $1,000 (i.e., face value) bond that pays an annual coupon of 10 percent and trades at a yield of 8 percent. Calculate Macaulay duration.
[Tip: try to draw a timeline with cash flow information.]
Group of answer choices
0.5234
1.8545
2.0
1.7690
1.9106
2) Assume the same information as in the previous question. A two-year, $1,000 (i.e., face value) bond that pays an annual coupon of 10 percent and trades at a yield of 8 percent. Calculate Modified Duration, and Dollar Duration.
Group of answer choices
1.6380 years; $1,696.37
1.8889 years; $1,956.25
1.769 years ; $1,832.08
1.769 years; $1,769.00
1.8519 years ; $1,917.89
3) Assume the same information as in the previous question. A two-year, $1,000 (i.e., face value) bond that pays an annual coupon of 10 percent and trades at a yield of 8 percent. What will be the change in price and the new price using the duration model if interest rates increase to 8.5 percent?
Group of answer choices
∆P = -$9.59 ; P = $990.41
∆P = -$9.59 ; P = $1026.07
∆P = -$9.16 ; P = $1026.50
∆P = -$8.85 ; P = $991.41
∆P = -$9.16 ; P = $990.84
