Valuing Bonds

Question 1

bond present values

Answer 1

PV = C/(1+y/n)^t

y = yield to maturity
n = number of interest payments each year

Question 2

duration formula

Answer 2

Duration =tPV(C)/PV

t = number of years
PV(C) = present value of specific cash flow
PV = present value of bond

Question 3

modified duration formula

Answer 3

Modified duration = duration/1+yield

Question 4

real cash flow formula

Answer 4

Real cash flow at date t = nominal cash flow at date t / (1+ inflation rate)^t

Question 5

real rate of return formula

Answer 5

RRR = (1+r nominal) / (1+i)

r = rate of return
i = rate of inflation