Question

Bond | Period | Year | Coupon | Price | YTM | Spot | Forward |

A | 1 | 0.5 | 4.8 | 101.78 | 1.22% | 1.22% | 1.22% |

B | 2 | 1 | 5.4 | 102.25 | 3.10% | 3.12% | 5.05% |

C | 3 | 1.5 | 6.2 | 101.34 | 5.26% | 5.35% | 9.87% |

D | 4 | 2 | 8.1 | 106.4 | 4.71% | 4.76% | 3.01% |

The table above reports the prices and coupons of four bonds, as
well as some implied rates. The coupons are paid semiannually.
**The rates in the table are APR** (Answers should
also be APR.) Forward rates for a period start a period before and
continue for this period only: for example, the missing forward
rate in the second row is the forward rate between 6 months from
now and 12 months from now, the 9.87% forward rate in the third row
is the forward rate between 12 months from now and 18 months from
now

Q5- What is the duration of Bond D? What change in its price will increase its yield to maturity by 1% per annum? Compute the price two ways: using the duration and discounting the cash flows. Explain the difference, if any, and its sign

Answer #1

1) An investor buys a 10-year bond with a 7.5% coupon rate paid
annually. The bond with a YTM of 6%, is purchased at a price of
$111.040 per $100 of par value. Assuming a 25bp change in the YTM,
the bond’s approximate modified duration is closest to: a) a) 7.100
years
b) 7.450 years
c) 7.253 years
2) As a corporate bond analyst, you see a 10-year newly bond
issued by Apple trading at a spread to Treasuries of...

Consider a pension plan that will pay $10,000 once a year for a
5-year period (5 annual payments). The first payment will come in
exactly 5 years (at the end of year 5) and the last payment in 9
years (at the end of year 9).
What is the duration of the pension obligation? The current
interest rate is 10% per year for all maturities.
To generate the scheduled pension payments, the pension fund
wants to invest the present value...

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