Question

L M Coupon Interest Rate, the bond is trading at discount Problem 13-09 Evaluate the following pure-yield pickup swap: You currently hold a 15-year, AA-rated, 9.5% coupon bond priced to yield 11.5%. As a swap candidate, you are considering a 15- year, AA-rated, 12.0% coupon bond priced to yield 12.5%. (Assume reinvestment at 12.5%, $1,000 par value, semiannual coupons.) Do not round intermediate calculations. Round your monetary answers to the nearest cent and percentage answers and value of swap to two decimal places. You may use Appendix C to answer the questions. Current Bond Candidate Bond Dollar investment $ $ $ $ $ $ Annual coupon i on one coupon Principal value at year end Total accrued Realized compound yield $ $ $ % % Value of swap: basis points in one year وظائف السعودية 5330 3400

Answer 1

Answer:

	Current Bond	Candidate Bond
Par Value	1000	1000
Coupon Rate	9.50%	12%
Yield Rate	11.50%	12.50%
Maturity in years	15	15
Reinvestment Rate	12.50%	12.50%
Dollar Investment	858.59	966.49	=PV(11.5%/2,15*2,-1000*9.5%/2,-1000)	=PV(12.5%/2,15*2,-1000*12%/2,-1000)
Annual Coupon	95	120	=1000*9.5%	=1000*12%
Value of one coupon	97.97	123.75	=95*(1+(12.5%/4))	=120*(1+(12.5%/4))
i on one coupon	2.97	3.75	=97.97-95	=123.75-120
Principal value at year end	862.44	967.33	=PV(11.5%/2,15*2-2,-1000*9.5%/2,-1000)	=PV(12.5%/2,15*2-2,-1000*12%/2,-1000,0)
Total Accrued	960.41	1091.08	=862.44+97.97	=967.33+123.75
Realized compounded yield	11.53%	12.50%	=RATE(2,0,-858.59,960.41)*2	=RATE(2,0,-966.49,1091.08)*2
Value of swap	0.97%		=12.5%-11.53%