On jan 1, 2012, fin307 is considering the newly issued 10-year aaa corporate bond, which is due jan 1, 2022, with a coupon rate of 6% per year paid every 6 months. the bond is traded at par. suppose the market interest rate declines by 100 bps (i. e., 1%), what is the duration (before interest rate change) and the effect of the market interest decline on the bond price? hint: if your calculator does not have a build-in function for duration, go to excel and do the calculation manually by setting up 6 columns for t (=1, 2, 3…..20), df(discount factor or 1/pv factor), cf (cashflow), pv (present value of cf=cf*df), w(weight=pv/sum of pv or p0), and t*w. then sum up all t*w, then divide by 2 (because here coupon is paid semiannually).

DURATION:  15.52358724

Explanation:

t // cash flow // pv// duration

130  $ 29.27  0.027151915

230  $ 28.55  0.052979346

330  $ 27.86          0.07753075

430  $ 27.18           0.100853008

530  $ 26.52  0.122991473

630  $ 25.87  0.143990017

730  $ 25.24  0.163891076

830  $ 24.62  0.182735695

930  $ 24.02  0.200563568

1030  $ 23.44  0.217413081

1130  $ 22.86  0.233321356

1230  $ 22.31          0.248324281

1330  $ 21.76          0.262456557

1430  $ 21.23          0.27575173

1530  $ 20.71          0.288242226

1630  $ 20.21          0.29995939

1730  $ 19.72          0.310933514

1830  $ 19.23          0.321193874

1930  $ 18.77          0.330768759

201030 $ 628.58  11.66253562

  $ 1,077.95  15.52358724

There is 20 payment as the bond stands for 10 years and does 2 payment per year

payment per year:

1,000 x 6% / 2 = $ 30 interest payment

then, we have the maturity at year-end for $ 1,000

Then, for the PV we use the lump sum:

For last step we do the average for that and multiply by the payment number

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

                                          hope it