A bank is owed money from a local restaurant, Anthony’s; the money was used a few...
- A bank is owed money from a local restaurant, Anthony’s; the
money was used a few years ago to renovate the restaurant. The term
loan has a fixed rate of interest and a yield to maturity of 8.0%
(APR), monthly payments of principal and interest each month are
$2,500. The loan has 2 years (24 payments) remaining.
- What is the Macauley duration of this bond?
- What is the modified duration of this bond?
- An investor owns $100M (market value or price NOT face or par) of these bonds, what is the Dollar Duration of this position?
- What is the price elasticity of the loan, given a 25bp change in annual yield to maturity (currently 8.0%)?
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A bank is owed money from a local restaurant, Anthony’s; the
money was used a few...
Show work (40 Points) As the new management trainee at the Rossville Bank of Tennessee, you...
Show
work
(40 Points) As the new management trainee at the Rossville Bank of Tennessee, you are given balance sheet, you have been asked by the bank president to determine the current mark-to-market balance sheet and modified durations for the bank's assets and liabilities. Fill in the blanks with market values and modified durations. Some of this information is already filled in. The bank has only three types of assets and two types of deposits. Amounts are in S thousands...
Show Work Please 4. (35 points) A bond with a yield to maturity of 3% and...
Show Work Please
4. (35 points) A bond with a yield to maturity of 3% and a coupon rate of 3% has 3 years re- maining until maturity. Calculate the duration and the modified duration for this bond assuming annual interest payments and a par value of $1,000. Why is the duration of this bond higher than the 3-year 10% coupon bond yielding 10% we looked at in class that had a duration of 2.7 years? If the required market...
4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond...
4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond was sold at par (i.e., at a price of $1,000) three years ago, when the YTM on similar bonds was 8.0%. If there are 12 years until maturity, what would be the YTM to an investor who buys the bond today? (Hint: If the bond's price was $1,000 three years ago, when the market interest rate was 8.0%, what must be the coupon rate?...
a. A 6% coupon bond paying interest annually has a modified duration of 7 years, sells...
a. A 6% coupon bond paying interest annually has a modified duration of 7 years, sells for $820, and is priced at a yield to maturity of 9%. If the YTM decreases to 8%, what is the predicted change in price ($) using the duration concept? (2 marks) b. A bond with annual coupon payments has a coupon rate of 6%, yield to maturity of 7 % , and Macaulay duration of 12 years. What is the bond's modified duration?...
1. An investor purchases an annual coupon bond with a 6% coupon rate and exactly 20...
1. An investor purchases an annual coupon bond with a 6% coupon rate and exactly 20 years remaining until maturity at a price equal to par value. The investor’s investment horizon is eight years. The approximate modified duration of the bond is 11.470 years. What is the duration gap at the time of purchase? (Hint: use approximate Macaulay duration to calculate the duration gap) 2. An investor plans to retire in 10 years. As part of the retirement portfolio, the...
Below is some useful material. A portfolio manager wants to estimate the interest rate risk of...
Below is some useful material.
A portfolio manager wants to estimate the interest rate risk of a bond using duration. The current price of the bond is 82. A valuation model found that if interest rates decline 30 basis points, the price will increase to 83.50 and if interest rates increase by 30 basis points, the price will decline to 80.75. What is the duration of this bond? [Read Attachment #1 before attempting.) Macaulay, Modified and Approximate Modified Durations Macaulay...
Ron Carr 7.Ron Car is an income investor who has a relatively low risk tolerance. He...
Ron Carr 7.Ron Car is an income investor who has a relatively low risk tolerance. He is considering the purchase of a $1,000 face value bond with the following characteristics: •Coupon: 4 percent •Coupon payments per year: one •Maturity: five years •Current market interest rate: 8 percent •Yield to maturity: 8 percent a.What is the bond’s current price? b.What is the bond’s modified duration? c.Based on your answer to the previous question, what will happen to the value of the...
Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money....
Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.55%, 13-year bond that's priced at $1,088.85 to yield 7.47%. 2. A 7.899%, 15-year bond that's priced at $1031.92...
1. The following table summarizes prices of various default-free, zero-coupon bonds (expressed as a percentage of...
1. The following table summarizes prices of various default-free, zero-coupon bonds (expressed as a percentage of face value): Maturity (years) Price (per $100 face value) $95.51 9105 $86.38 $81.65 $76.51 (a) Compute the yield to maturity for each bond. (b) Plot the zero-coupon yield curve (for the first five years). (c) Is the yield curve upward sloping, downward sloping, or flat? 2. Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield...
Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money....
Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.61%, 13-year bond that's priced at $1,095.54 to yield 7.45%. 2. A 7.789%, 15-year bond that's priced at $1020.34...
Show
work
(40 Points) As the new management trainee at the Rossville Bank of Tennessee, you are given balance sheet, you have been asked by the bank president to determine the current mark-to-market balance sheet and modified durations for the bank's assets and liabilities. Fill in the blanks with market values and modified durations. Some of this information is already filled in. The bank has only three types of assets and two types of deposits. Amounts are in S thousands...
Show Work Please
4. (35 points) A bond with a yield to maturity of 3% and a coupon rate of 3% has 3 years re- maining until maturity. Calculate the duration and the modified duration for this bond assuming annual interest payments and a par value of $1,000. Why is the duration of this bond higher than the 3-year 10% coupon bond yielding 10% we looked at in class that had a duration of 2.7 years? If the required market...
4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond was sold at par (i.e., at a price of $1,000) three years ago, when the YTM on similar bonds was 8.0%. If there are 12 years until maturity, what would be the YTM to an investor who buys the bond today? (Hint: If the bond's price was $1,000 three years ago, when the market interest rate was 8.0%, what must be the coupon rate?...
a. A 6% coupon bond paying interest annually has a modified duration of 7 years, sells for $820, and is priced at a yield to maturity of 9%. If the YTM decreases to 8%, what is the predicted change in price ($) using the duration concept? (2 marks) b. A bond with annual coupon payments has a coupon rate of 6%, yield to maturity of 7 % , and Macaulay duration of 12 years. What is the bond's modified duration?...
Below is some useful material.
A portfolio manager wants to estimate the interest rate risk of a bond using duration. The current price of the bond is 82. A valuation model found that if interest rates decline 30 basis points, the price will increase to 83.50 and if interest rates increase by 30 basis points, the price will decline to 80.75. What is the duration of this bond? [Read Attachment #1 before attempting.) Macaulay, Modified and Approximate Modified Durations Macaulay...
Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.55%, 13-year bond that's priced at $1,088.85 to yield 7.47%. 2. A 7.899%, 15-year bond that's priced at $1031.92...
1. The following table summarizes prices of various default-free, zero-coupon bonds (expressed as a percentage of face value): Maturity (years) Price (per $100 face value) $95.51 9105 $86.38 $81.65 $76.51 (a) Compute the yield to maturity for each bond. (b) Plot the zero-coupon yield curve (for the first five years). (c) Is the yield curve upward sloping, downward sloping, or flat? 2. Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield...
Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.61%, 13-year bond that's priced at $1,095.54 to yield 7.45%. 2. A 7.789%, 15-year bond that's priced at $1020.34...
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