You are considering the following bonds to include in your portfolio: Bond 1 Bond 2 Bond...
- You are considering the following bonds to include in your portfolio:
|
Bond 1 |
Bond 2 |
Bond 3 |
|
|
Price |
$900.00 |
$1,100.00 |
$1,000.00 |
|
Face Value |
$1,000.00 |
$1,000.00 |
$1,000.00 |
|
Coupon Rate |
7.00% |
10.00% |
9.00% |
|
Frequency |
1 |
2 |
4 |
|
Maturity (Years) |
15 |
20 |
30 |
|
Required Return |
9.00% |
8.00% |
9.00% |
- Determine the highest price you would be willing to pay for each of these bonds using the PV function. Also find whether the bond is undervalued, overvalued, or fairly valued.
- Determine the yield to maturity on these bonds using the Rate function assuming that you purchase them at the given price. Also calculate the current yield of each bond.
- Assume the following settlement dates for each bond:
|
Bond 1 |
Bond 2 |
Bond 3 |
|
|
Settlement Date |
1/1/2018 |
6/1/2018 |
9/1/2018 |
Use the Price and Yield functions to recalculate your answers on parts (a), (b), and (c).
- Determine the duration and the modified duration of each bond.
Homework Answers
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You are considering the following bonds to include in
your portfolio:
Bond 1
Bond 2
Bond...
You are considering the following bonds to include in your portfolio: Bond 1 Bond 2 Bond...
You are considering the following bonds to include in your portfolio: Bond 1 Bond 2 Bond 3 Price $900.00 $1,100.00 $1,000.00 Face Value $1,000.00 $1,000.00 $1,000.00 Coupon Rate 7.00% 10.00% 9.00% Frequency 1 2 4 Maturity (Years) 15 20 30 Required Return 9.00% 8.00% 9.00% Determine the highest price you would be willing to pay for each of these bonds using the PV function. Also find whether the bond is undervalued, overvalued, or fairly valued. Determine the yield to maturity...
Calculate the Duration and Modified Duration of each bond (already completed). Create a chart the shows...
Calculate the Duration and Modified Duration of each bond
(already completed). Create a chart the shows both measures
versus term to maturity. Does duration increase linearly
with term? If not, what relationship do you see?
А 2 Settlement Date 3 Maturity Date 4 Coupon Rate 5 Market Price 6 Face Value 7 Required Return 8 Frequency Bond A 2/15/2017 8/15/2027 4.00% 975.00 1,000.00 4.35% 2.00 Bond B 2/15/2017 5/15/2037 6.25% 1,062.00 1,000.00 5.50% 2.00 Bond C 2/15/2017 6/15/2047 7.40% 1,103.00...
b. A bond portfolio consists of the following three annual coupon payment bonds. Prices are per...
b. A bond portfolio consists of the following three annual coupon payment bonds. Prices are per 100 of par value. Price Coupon (%) Bond Maturity Market (years) Value 171,000 B 10 161,800 C 15 150.000 Modified Duration (years) 5.23 3.00 Yield-to- Maturity (%) 5.95 5.99 6.00 85.50 80.90 100.00 3.40 6.00 7.98 9.71 i. Determine the weight of each bond in the bond portfolio. (3 marks) ii. Calculate the bond portfolio's modified duration. (2 marks)
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BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each...
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C and Bond Z. Each
bond matures in 4 years, has a face value of $1,000, and has a
yield to maturity of 9 6%.
Bond C pays a 10% annual coupon, while Bond Z is a zero coupon
bond.
a. Assuming that the yield to maturity of each bond remains at 9 6%
over the next 4
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Calculate the Duration and Modified Duration of each bond
(already completed). Create a chart the shows both measures
versus term to maturity. Does duration increase linearly
with term? If not, what relationship do you see?
А 2 Settlement Date 3 Maturity Date 4 Coupon Rate 5 Market Price 6 Face Value 7 Required Return 8 Frequency Bond A 2/15/2017 8/15/2027 4.00% 975.00 1,000.00 4.35% 2.00 Bond B 2/15/2017 5/15/2037 6.25% 1,062.00 1,000.00 5.50% 2.00 Bond C 2/15/2017 6/15/2047 7.40% 1,103.00...
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