Question

A callable bond has a first call price of 102 and an MD of 7.38. It trades at 101.37 to yield 7.8%. Using MD to estimate the price changes, what is the bond's effective duration?

Answer #1

A bond with 6 years remaining until maturity is currently
trading for 102 per 100 of par value. The bond offers an 8% coupon
rate with interest paid semiannually. The bond is first callable in
2 years, and is callable after that date on coupon dates according
to the following schedule.
End of Year
4
5
6
Call price
103
102
100
A. What is the bonds YTM?
B. The bond's annual yield-to-first call is closest to?
C. What is...

If a bond has high positive convexity:
It must be callable.
It can be callable but must be trading above its call
price.
The investor benefits from large changes in interest rates,
compared to how an otherwise similar low convexity bond would have
performed.
The investor is hurt by large changes in interest rates,
compared to how an otherwise low convexity bond would have
performed.
Duration provides a precise estimate of the bond’s interest
rate risk

A bond has a MD of 6.50 years and trades at a price of 118.08.
The YTM is 3.40%. Its CX factor is 50.68. Using MD and CX, what is
the new price when the YTM increases to 5.1%?

Callable bond. Corso Books has just sold a callable bond. It is
a thirty-year quarterly bond with an annual coupon rate of 5% and
$5,000 par value. The issuer, however, can call the bond starting
at the end of 10 years. If the yield to call on this bond is 7%
and the call requires Corso Books to pay one year of additional
interest at the call (4 coupon payments), what is the bond price
if priced with the assumption...

Price a 2y 5.3% semi-annual pay bond, callable at 102, assuming
rate volatility is 15% and yields are as below. Once you have
priced this bond, calculate its annualized yield to call.
T
Y(0,t)
0.5
1.2%
1
3.2%
1.5
4.5%
2
5.3%

Suppose Costco Corp.
issued a 15 year bond callable in 3 years at a call price of 1,160;
the bond has annual payments of 8% of its par value of $1,000.
Current bond price is $930.
a. Find the yield to
maturity.
b. Find
the yield to call.
c. Do you think the
issuer is likely to call the bond in 3 years? Why or why not?

General Electric has just issued a callable (at par) 10-year,
5.7 % coupon bond with annual coupon payments. The bond can be
called at par in one year or anytime thereafter on a coupon payment
date. It has a price of $ 102.18.
a. What is the bond's yield to maturity?
b. What is its yield to call?
c. What is its yield to worst?

IBM has just issued a callable (at par) 10 year, 6% coupon bond
with quarterly coupon payments. The bond can be called at par in
two year or anytime thereafter on a coupon payment date. It has a
price of $97 per $100 face value. What is the bond’s yield to
maturity? What is the bond's yield to call?

Boeing Corporation has just issued a callable (at par)
three-year, 4.9 % coupon bond with semi-annual coupon payments.
The bond can be called at par in two years or anytime thereafter on
a coupon payment date. It has a price of $ 98.56
a. What is the bond's yield to maturity?
b. What is its yield to call?
c. What is its yield to worst?

A corporate bond pays interest annually and has 3 years to
maturity, a face value of $1,000 and a coupon rate of 3.6%. The
bond's current price is $1,002.8. It is callable at a call price of
$1,050 in one year.What is the bond's yield to maturity? What is
the bond's yield to call?

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