1)
Yield to maturity is the annualized return earned on the bonds over the life bond if other things remain unchanged after purchasing the bond. Bond prices changes accordingly to yield the YTM to investor consistently over period of maturity.
Hence, total return for 1-year is 6%.
Show the time line and key steps of one method. 1. A new 8%, 5-year bond...
1. What is the value of a 5% annual coupon, 10 vr bond. $1.000 par value, if interest rates in the economy are 5% 2. T/F the interest rate a bond pays changes when interest rates or the price of the bond changes 3. T/F A U.S. Treasury note or bond has no credit risk and no interest rate risk. 4. What should happen to the price of a B+ corporate bond if the economy enters a recession a. It...
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...
"If the investment horizon is equal to the Macaulay duration of the bond, the investor is hedged against interest rate risk". However, the above statement is only true if interest rates only change before fist coupon payment is received. Using the following bond to show that if interest rate increases 2% between first and second coupon payment dates, the investor is not hedged against interest rate risk even if his duration gap is zero.: A four-year 33.7% annual coupon paying...
Question #5: Bond Pricing [16 Points Calculate the prices of the following bonds (16 Points; 8 Points each] (a) A 14 year $1000 face value coupon bond that pays an coupon rate of 4.6%. The YTM = 3.2%. Assume that the coupon payments are paid semi-annually, (b) A 14 year $1000 face value coupon bond that pays an coupon rate of 4.6%. The YTM = 3.2% Assume that the coupon payments are paid annually. Question #6: Bond Pricing and Accrued...
Show calculations, and write clearly. Please submit via Blackboard. l. (15 points) i 0- year Treasury bonds have a coupon rate of 2.2 % and par value of S1000. The selling price is $ 970. IA. Calculate and explain how much in dollars you will receive in cash on an annual basis. IB. Calculate total dollar income during the 10 years of investing and holding of this bond. 1C. Calculate your final wealth in dollars. 2. (10 points) 10-year Treasury...
Question 1 A bond has 23 year to maturity and a coupon rate of 7%. Coupons are paid semi-annually. If the YTM of the bond is 10%, what is the price of the bond today? Round your answer to dollars and cents, for example 100.12. Flag this Question Question 2 Today you purchase a 9-year bond at a YTM of 11%. The bond pays coupons annually and has a coupon rate of 9%. What is your 1-year rate of return...
Can someone please help me, I am trying to find Face Value of Bond (FV), Effective Annual Interest Rate (EAR), Yield to Maturity (YTM) if held to maturity and Total Return for Investment portfolio for the 6 month treasury below. Please show your work so that I can try to grasp this. Thank you 6-month Treasury Bill (GB6:GOV) Face Value of Bond (FV) $ ? Price $ 1.54 Yield 1.58% Asset Category: U.S. Treasury and U.S. Agency Securities Asset Classification" Cash...
mike wants to buy a U.S. government Treasury bond that has 12 years remaining until maturity. The coupon rate is 6% per year and is paid out semiannually. The face or par value of the bond is $100,000. The current yield-to-maturity (YTM) of this bond is 5%. Calculate (1) the current market price of this bond, and (2) the new price if the required YTM rises from 5% to 6% due to a market change in bond interest rates.
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 3.5% if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) Economy Probability YTM Price Capital Gain Coupon Interest HPR Boom...
8. You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell the bond three yean is your rate of return over this three-year period? A 40 percent B. 10 percent C. 20 percent D. 30 percent 11. Duration True or false? Explain. a. Longer-maturity bonds necessarily have longer durations. b. The longer a bond's duration, the lower its volatility. c. Other things equal, the lower the bond coupon, the higher its volatility. d. If interest...