Bond 1

Coupon Rate (B1)

Year Spot Rate (S) d ( discount Fator) or PVBond1 ($)
Cash flow/ year
1 7.67% 0.9288 $6.0 $5.573
2 8.27% 0.8531 $6.0 $5.118
3 8.81% 0.7762 $6.0 $4.657
4 9.31% 0.7004 $6.0 $4.203
5 9.75% 0.6280 $6.0 $3.768
6 10.16% 0.5596 $6.0 $3.357
7 10.52% 0.4965 $6.0 $2.979
8 10.85% 0.4386 $6.0 $2.632
9 11.15% 0.3862 $6.0 $2.317
10 11.42% 0.3391 $6.0 $2.035
11 11.67% 0.2970 $6.0 $1.782
12 11.89% 0.2597 $106.0 $27.530
Σ (Sum) $65.951
Price of Bond 1 = P1

Modified Duration of Bond 1 ( Pv' / Pv1) 7.066

Duration of Bond 1= D1

Obligation

Year Obligation each Year ($) Present Value $(obligation)

1 500 $464.38
2 900 $767.76
3 600 $465.74
4 500 $350.21
5 100 $62.80
6 100 $55.96
7 100 $49.65
8 50 $21.93
Σ (Sum) $2,238.44
Obligation Cost =PV

Modified Duration of Obligation ( Pv' / Pv1) 2.4476

Duration of Obligation =D
 Bond 2

Coupon Rate (B1)

Pv' ($
* Year) Year Spot Rate (S) d ( discount Fator) or Cash
flow/ year
5.176 1 7.67% 0.9288 $10.0
9.455 2 8.27% 0.8531 $10.0
12.841 3 8.81% 0.7762 $10.0
15.378 4 9.31% 0.7004 $10.0
17.167 5 9.75% 0.6280 $110.0
18.287
18.868
18.994
18.763
18.262
17.551
295.257
465.999 Σ (Sum)

Years Modified Duration of Bond 2 ( Pv' / Pv1)

2 Equations and 2 Unknowns :

Pv'
($ *
Year)
431.301 Equation 1: P1V1 + P2V2 = PV
1418.235
1284.095 65.951($)*V1 + 101.668($)*V2 = 2238.44
1281.535
286.116 Equation 2: P1 D1 V1 + P2 D2 V2 = PV*D
304.778
314.464 65.951($)*7.066*V1 + 101.668($)* 3.798*V2 = 2238.44*2.45 (yrs)
158.285
5,478.81 Solving those 2 equations, Gives V1 , V2 :

Years V1= -14 Shares V2= 31.0988 Shares

2

Pv'
PVBond2 ($) ($ *
Year)
$9.288 8.626
$8.531 15.758
$7.762 21.402
$7.004 25.631
$69.083 314.728

$101.668 386.145
Price of Bond 2 = P2

3.798 days
Duration of Bond 2= D2

Unknowns :

+ P2V2 = PV

8($)*V2 = 2238.44

+ P2 D2 V2 = PV*D

3.798*V2 = 2238.44*2.45 (yrs)

ns, Gives V1 , V2 :

V2= 31.0988 Shares