An investor plans to retire in 10 years as part of the, Ask an Expert

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An investor plans to retire in 10 years. As part of the retirement portfolio, the investor buys a newly issued, 12-year, 8% annual coupon payment bond. The bond is purchased at par value, so its yield-to- maturity is 8.00% stated as an effective annual rate.

-Calculate the approximate Macaulay duration for the bond, using a 1 bp (0.01%) increase and decrease in the yield-to-maturity and calculating the new prices per 100 of par value to six decimal places.

_____________

-Calculate the duration gap at the time of purchase.

(Hint: An investor plans to retire in 10 years. So, this investor’s investment horizon is 10 years.)

_____________

-Does this bond at purchase entail the risk of higher or lower interest rates?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92316115

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