treasury management

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You have constructed a table to calculate the duration of 2 year coupon paying bonds issued by Earth Bank at a yield of 3% pa compounded half-yearly. The bonds have a face value of $190,000 and a coupon rate of 5% pa compounded half-yearly. You printed up the table so that you could take it to a meeting, but unfortunately the final row has been cut off the printout.

a)Complete the table. Give your answers as decimals to 4 decimal places.

Cash flow Amount
($) Present value of
the cash flow
(PVCF) Weight
1 4,750 4,679.8030 0.0237
2 4,750 4,610.6433 0.0234
3 4,750 4,542.5057 0.0230

b)Calculate the duration (D) of the Earth Bank bonds using the rounded values in the table. Give your answer in years to 2 decimal places.

D =

c)If the yield were to decrease immediately, the duration of the bonds would:

remain unchanged

[1 mark]- 2 of 3 ID: FMTH.DI.D.01.0020b
A portfolio consists of the following two investments:

a bond with face value of $100.00 paying annual coupons of 9% maturing in 5 years
an annuity with payments of $40.00 at the end of each year for 5 years
The portfolio is comprised of 36% bonds and 64% annuities.

The term structure is flat and the current yield is 8% pa effective.

Calculate the duration (D) of the portfolio. Give your answer to 2 decimal places.

D =

[1 mark]- 3 of 3 ID: MF.DI.D.03A
A financial instrument provides three future cash flows:

$2,142.32 at the end of 3 years
$1,771.61 at the end of 7 years
$1,237.03 at the end of 13 years
Calculate the duration (D) of the financial instrument at a yield of 6% pa compounded yearly. Give your answer in years to 2 decimal places.

D =

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