What is the Macaulay duration and modified duration of the zero-coupon bond with the yield to maturity of 6% maturing on 30th June 2027?

Finance

Multiple Choice Questions

Instructions:

• There are 10 questions. Choose the best answer to each question and write your answer choice (A, B, C, D or E) on Canvas. Each question is worth 10 points.

• The questions will be graded according to the Course Syllabus. Your Excel spreadsheet files will serve as evidence of your work.

• Submit the answers together with your Excel spreadsheets file on Canvas.

• Make sure you do your works CLEARLY and NEATLY. Untidy work will result in a 1 point penalty per question.

Questions                                               

Questions 1 and 2 are directed at Task 1

• What is the invoice price when the settlement date is 30th June 2021?

• 932.68

• 933.49

• 940.63

• 943.15

• 951.18

 

• What is the invoice price when the settlement date is 5th September 2021?

• 932.68

• 933.49

• 940.63

• 943.15

• 951.18

 

Questions 3 to 8 are directed at Task 2

• What is the Macaulay duration and modified duration of the zero-coupon bond with the yield to maturity of 6% maturing on 30th June 2027?

• Macaulay duration = 6.0000, modified duration = 5.6604

• Macaulay duration = 6.1113, modified duration = 5.9333

• Macaulay duration = 5.3532, modified duration = 5.1972

• Macaulay duration = 8.4740, modified duration = 8.2272

• Macaulay duration = 5.0290, modified duration = 4.8825

 

• What is the Macaulay duration and modified duration of the 4% semi-annual coupon payment bond with the yield to maturity of 6% maturing on 30th June 2027?

• Macaulay duration = 6.0000, modified duration = 5.6604

• Macaulay duration = 6.1113, modified duration = 5.9333

• Macaulay duration = 5.3532, modified duration = 5.1972

• Macaulay duration = 8.4740, modified duration = 8.2272

• Macaulay duration = 5.0290, modified duration = 4.8825

 

• What is the Macaulay duration and modified duration of the 7% semi-annual coupon payment bond with the yield to maturity of 6% maturing on 30th June 2027?

• Macaulay duration = 6.0000, modified duration = 5.6604

• Macaulay duration = 6.1113, modified duration = 5.9333

• Macaulay duration = 5.3532, modified duration = 5.1972

• Macaulay duration = 8.4740, modified duration = 8.2272

• Macaulay duration = 5.0290, modified duration = 4.8825

 

• Holding time to maturity and yield to maturity constant, what can you infer about a bond’s Macaulay duration and modified duration as the coupon rate decreases from 8% to 4%?

• Macaulay and modified durations remain unchanged.

• Macaulay and modified durations increase.

• Macaulay and modified durations decrease.

• Macaulay duration increases while modified duration decreases.

• Macaulay duration decreases while modified duration increases

 

• Suppose the bond’s annual coupon rate is 7%. What can you infer about the Macaulay duration as the maturity increases from 30th June 2027 to 30th June 2032?

• Macaulay duration stays the same.

• Macaulay duration increases.

• Macaulay duration decreases.

• None of the above.

 

 

• Suppose the bond’s annual coupon rate is 7% and the maturity date is 30th June 2027. What can you infer about the Macaulay duration as the yield to maturity decreases from 6% to 5%?

• Macaulay duration stays the same.

• Macaulay duration increases.

• Macaulay duration decreases.

• None of the above.

 

Questions 9 and 10 are directed at Task 3

• The current yield to maturity is 6%. What is the annualized convexity of the 7% semi-annual coupon payment bond maturing on 30th June 2027?

• 149.417

• 115.6984

• 37.3543

• 28.9246

• 19.53

 

• The yield to maturity rises from 6% to 10%. What is the approximate percentage price change of the bond if you consider both modified duration and convexity?

• -19.53%

• -17.22%

• 0.00%

• 17.22%

• 19.53%