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For Stephen 1. An investor wishes to ride the yield curve…

For "Stephen" 1. An investor wishes...
For "Stephen"

1. An investor wishes to ride the yield curve to higher profits on an investment of $1,000. He observes in the market a zero-coupon T-note with one year left to maturity yielding 5 percent and another zero-coupon T-note yielding 7 percent with two years to maturity. What investment strategy should he pursue? Show how this investment strategy would be superior to a simple buy-and-hold strategy. Under what conditions will this strategy succeed? When will it fail?


2. Calculate the value of duration for a four-year, $1,000 par value U.S. government bond purchased today at a yield to maturity of 15 percent. The bond’s coupon rate is 12 percent, and it pays interest at year’s end. Now suppose the market interest rate on comparable bonds falls to 14 percent. What percentage change in this bond’s price will result?
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Answered in 3 minutes by:
7/9/2010
Steve
Steve, MBA
Category: Business and Finance Homework
Satisfied Customers: 25,932
Experience: MBA
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Thanks for requesting me. If I get this for you sometime tomorrow is that okay?
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Customer reply replied 8 years ago

That will be fine. I will have others which are due by Saturday.

 

Thanks....

Sounds good, thanks.
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Hi,

 

Here are your answers:

 

1)

 

http://www.box.net/index.php?rm=box_download_shared_file&file_id=f_464013606&shared_name=57u18gu82v

 

2)

 

http://www.box.net/index.php?rm=box_download_shared_file&file_id=f_464013604&shared_name=rucvmi75t1

 

Please let me know if you have questions. Please press ACCEPT if satisfied.

 

Cheers,

 

Steve

 

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Customer reply replied 8 years ago

Hi Steve,

 

When I copy problem 2 (duration) in excel, the calculation does not show for duration. An error: #VALUE! is in the cell instead of the answer. Also, cell c4 and 5 have dates. Is there something that I need to do in excel to a make the formula work?

 

Your help is greatly appreciated.

They are supposed to be dates, the formula runs off dates... Does the original file I posted work, or only when you copy it out to another excel file?
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Customer reply replied 8 years ago
The file you sent works but when I copy and paste it in my worksheet, the error comes up.
Sounds like an excel glitch in that case. You can try re creating the formula by re trying it, but I'm not sure what to tell you beyond that...
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Customer reply replied 8 years ago

I tried to create the formula once but I will try again and hopefully, it will work. The problem below is just like #1 put the percent change. Would you please answer this one for me and I will add extra money.

 

Repeat problem 1, but where the market interest rates are: 7 percent for the 1-year, zero-coupon bond and 5 percent for the 2-year, zero-coupon bond.

 

Thanks and I will have a couple more problems this afternoon. Thanks again.

I have answered your new question here:

 

http://www.box.net/index.php?rm=box_download_shared_file&file_id=f_464066148&shared_name=5yiieqvfkc

 

I have calculated duration using a second method for you and placed it here:

 

http://www.box.net/index.php?rm=box_download_shared_file&file_id=f_464066146&shared_name=mdyljz2hdz

 

It is highlighted in yellow.

 

This was a significantly greater amount of work than the original question, so a generous bonus would be appreciated.

 

 

Thanks,

 

Steve

 

Steve
Steve, MBA
Category: Business and Finance Homework
Satisfied Customers: 25,932
Experience: MBA
Verified
Steve and 87 other Business and Finance Homework Specialists are ready to help you
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Customer reply replied 8 years ago

Hi Steve,

 

Formula is not working with Method 2 as well but I will find a way to fix the problem. Thanks for your help and I have included a bonus....

 

Cynthia

the formula in the second method is a very simple formula, I am not sure how it is possible that it doesn't work for you?

 

In any event, thanks for the bonus. Please post your new questions to me when you are ready using this link:

 

http://www.justanswer.com/profile.aspx?PF=26942375&FID=212

 

and be sure to start them with "FOR STEPHEN ONLY"

 

Thanks,

 

Steve

 

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