Question

Consider the following three bonds which you bought today at the listed purchase prices.

Bond A: Purchase price $15,000 with Face Value of $20,000 in 1 years.

Bond B: a perpetuity has a price of $1250 and an annual coupon payment of $25

Bond C: Purchase price of $15000, Face Value of $20,000 in 10 years and pays annual coupon payments of $25

Assume 1 year from now you want to sell these bonds: For each of these bonds calculate price after 1 year and the Holding period Return if interest rate after 1 year is 5%

Answer #1

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A bond trader bought each of the following bonds at a yield to
maturity of 8 percent. Few weeks after the purchase of the bonds,
interest rates fell to 7 percent.
Maturity
Coupon
Price at 8%
Price at 7%
Percentage Change
10-year
10% annual coupon
10-year
zero
5-year
zero
30-year
zero
$100
perpetuity
Required: Complete missing information int he above table

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2 marks)
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a) You are considering investing in bonds and have collected the
following information about the prices of a 1-year zero-coupon bond
and a 2-year coupon bond.
- The 1-year discount bond pays $1,000 in one year and sells for
a current price of $950.
- The 2-year coupon bond has a face value of $1,000 and an
annual coupon of $60. The bond currently sells for a price of
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Given the purchase prices, coupons and maturities of four bonds,
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zero but calculate its yield with a semi-annual equivalency.
Provide your answers to 4 significant digits (example: 6.1234%)
Bond A Price 984.00, annual coupon 3%, maturing in 2 years Bond B
Price 799.00, annual coupon 6%, maturing in 5 years Bond C Price
767.00, annual...

Consider the following prices of zero coupon bonds, each with a
face value of $1,000, for different maturities:
Maturity
Price
1
962
2
925
3
889
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You just bought a bond that will mature in 3 years. The face
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coupon rate. The yield to maturity of the bond is 6%.
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What is the return on the bond if you hold it for one year (you
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Suddenly, the interest rates increased, so the new yield to
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(With this problem there is a table). The percent prices are
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Consider the following three bonds and bond prices (0s denotes
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Bond Price
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15s of 5/15/2012 106-02
All bonds have identical face values and the same (but
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arbitrage portfolio (normalize the weight of the 15s bond to 1)?
What is the arbitrage profit?

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