NBP Sarmaya Izafa Fund is attempting to balance one of the bond portfolios under its management. The fund has identified three bonds which have five-year maturities and which trade at a YTM of 9 percent. The bonds differ only in that the coupons are 7 percent, 9 percent, and 11 percent. a. What does the concept of duration mean in context of security valuation? b. On what factors duration of a bond depends and what relation duration has with those factors? c. Calculate the duration of the tree bonds as described in para above. d. Plot the relation between duration and coupon rate
NBP Sarmaya Izafa Fund is attempting to balance one of the bond portfolios under its management. The fund has identified three bonds which have five-year maturities and which trade at a YTM of 9 percent. The bonds differ only in that the coupons are 7 percent, 9 percent, and 11 percent. a. What does the concept of duration mean in context of security valuation? b. On what factors duration of a bond depends and what relation duration has with those factors? c. Calculate the duration of the tree bonds as described in para above. d. Plot the relation between duration and coupon rate
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 17P: Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4...
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Concept explainers
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
NBP Sarmaya Izafa Fund is attempting to balance one of the bond portfolios under its management. The fund has identified three bonds which have five-year maturities and which trade at a YTM of 9 percent. The bonds differ only in that the coupons are 7 percent, 9 percent, and 11 percent.
a. What does the concept of duration mean in context of security valuation?
b. On what factors duration of a bond depends and what relation duration has with those factors?
c. Calculate the duration of the tree bonds as described in para above.
d. Plot the relation between duration and coupon rate
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