Coco/345 Week 3

Peredio Mentor Finance 345.101 Dr. Gladson Nwanna Homework Assignment page 189 questions 6&9 6. State the difference in basis points between each of the following: A. 5.5% and 6.5%  Explanation: The difference between 5.5% and 6.5% is 100 base points. In addition, the difference is 100 base points because of the difference between 6.5%=650 points and 5.5%=550 points. B. 7% and 9%  Explanation: The difference in the amount of point’s between7% and 9% is 200 basis points. Due to the fact that 9%=900 and 7%=700 so the difference amount is 200 basis points. C. 6.4% and 7.8%  Explanation: The difference in the amount of points between 7.8% and 6.4% is 140. Due to the fact that 7.8%= 780 points and 6.4%=640. The difference between 780 points …show more content…

In Excel the price of the bond was calculated in Excel as PV (7.5%, 7,-60,-1000). In the first parameter there is a discount rate of 7.5%. Then in the second parameter there is the number of years till maturity which is seven years.  Then third parameter is coupon payment of $60 and the fourth parameter is principal of $1000. This value that was determined to be the price of the bond at a 7.5% discount rate is $920.55. 9E: What is the duration of this bond, assuming that the price is the one you calculated in part b?  The duration of the bond is 3.81 years. 9F: If the yield changes by 100 base points, from 8% to 7%, by how much would you approximate the percentage price change to be using your estimate of duration in part (e)?  Applying the formula-D (change in yield) = -5.44 (.01) or a price increase of 5.42%. 9G: What is the actual percentage price change if the yield changes by 100 basis points?  Price at 8% =$895.88, at 7% = $946.06, so actual percentage change is ($946.06 - $895.88)/ $895.88=5.6% Homework Assignment for pages 214-215; Questions 7A &7B; 13A&13B 7A: Show the cash flows for the two bonds below, each of which has a par value of $1000 and pays interest …show more content…

At the end of period 10 years, Bond W also pays back the par value of $1,000. Then the total payment was determined to be $1035 because of the sum of $1,000 and $35.Then, it was determined that Bond Y has cash flows of 0.09($1,000) / 2 = $45 for semiannual periods from periods 1 to 8 years. At the end of period 8 years, Bond Y also pays back the par of $1,000 for a total payment of $1,000 + $45 = $1,045.  Below is an illustration of the usage of the cash flow chart that was utilities as an aid to determine the answers. Period Cash Flow for Bond W Cash Flow for Bond Y 1. $35 1.