7. Cash flow 1 consists of three payments: A is 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments: X in 6 periods and Y in 12 periods. As of at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that now, (a) the two sets of cash flows will have the same present value(at t=1); (b) the two sets of cash flows have the same Macaulay duration at that time; and (c) the Macaulay duration one period from now is exactly 1 less than it is now.

7. Cash flow 1 consists of three payments: A is 5 periods, B in 10 periods and C in 15 periods. Cash flow 2 consists of 2 payments: X in 6 periods and Y in 12 periods. As of at yield j per period for all maturities, the two sets of cashflows have the same present value and the same Macaulay duration. Suppose that one period from now the yield is still j for all maturities. Show that now, (a) the two sets of cash flows will have the same present value(at t=1); (b) the two sets of cash flows have the same Macaulay duration at that time; and (c) the Macaulay duration one period from now is exactly 1 less than it is now.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 4MC

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