W11 Excel Model Valuation-DT

Bond A Bond B Bond C Face Value 1,000 1,000 1,000 Coupon Payment 75 100 115 Yield to Maturity 10% 10% 10% Maturity Period 12 12 12 Price Bond $829.66 $1,000.00 $1,102.21 Current Yield 9.04% 10.00% 10.43%   Bond A is a Discount Bond, Bond B is a Par Value Bond and Bond C is a Premium Bond. The current price of Bond A is $829.66, Bond B is $1,000and Bond C is$1,102.21. The current yield of Bond A is 9.04%, Bond B is 10%and Bond C is10.43%. If the yield to maturity for each bond remains at 9%, what will be the price of each bond 2 years from now?

$1,000 par value zero-coupon bonds (Ignore liquidity premiums) Yield to Maturity 6.00% 7.50% 7.99% 8.49% 10.70% Bond Years to Maturity A 1 B C D E Multiple Choice 2 One year from now bond C should sell for C 3 4 5 $827.58 $894.37 $835.64

Year 1-Year Forward Rate 1 4.6 % 2 4.9 % 3 5.2 % 4 5.5 % 5 6.8 %       What should the purchase price of a 1-year zero-coupon bond be if it is purchased today and has face value of $1,000? A. $945.51 B. $950.21 C. $912.87 D. $966.37 E. $956.02

Table 10-1 Bond price table Yield to Maturity 2% 4% 6% 796 8% 9% 10% 11% 12% 13% 14% 16% 20% 25% (10% Interest Payment, 20 Years to Maturity) PV of PV of Principal Coupons $1.635.14 1,359.03 1.146.99 1,059.40 981.81 912.85 851.36 796.33 746.94 702.48 662.31 592.88 486.96 395.39 + + + + + + $672.97 456.39 311.80 258.42 214.55 178.43 148.64 124.03 103.67 86.78 72.76 51.39 26.08 11.53 11 11 ||||||||||||||||||| || Bond Price $2,308.11 1,815.42 1,458.80 1,317.82 1,196.36 1,091.29 1,000.00 920.37 850.61 789.26 735.07 644.27 513.04 406.92

$1,000 par value zero-coupon bonds (ignore liquidity premiums) Bond Years to Maturity Yield to Maturity 6.00% 7.50% 7.99% ABCDE Multiple Choice O 12345 The expected 2-year interest rate 3 years from now should be O 2 9.55% 11.74% 14.89% 8.49% 10.70% 13.73%

Bond A Bond B Years to maturity 5 years 10 years Coupon rate 5% 5% Par value 1000 1000 Yield to maturity 8% 6% Par amount owned R3,45 million R2 million Market value R30 367.59 (in 000’s) R18 528 (in 000’s)   Required: Without doing any calculations, which bond would have a higher duration                              Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.                               Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.

Bond A Bond B Years to maturity 5 years 10 years Coupon rate 5% 5% Par value 1000 1000 Yield to maturity 8% 6% Par amount owned R3,45 million R2 million Market value R30 367.59 (in 000’s) R18 528 (in 000’s) How do you work out the duration using Macauly's duration.

Coupon Yield to maturity Maturity (years) Par Price Bond A 8% 8% 2 5 $100.00 $100.00 $100.00 $104.055 Bond B 9% 8% (a) Calculate the actual price of the bonds for a 100-basis-point (1% annual) increase in interest rates. (b) Using (modified) duration, estimate the price of the bonds for a 100-basis- point (1% annual) increase in interest rates.

bed ok nt ences Problem 3-10 (LG 3-2) Calculate the yield to maturity on the following bonds: a. A 9.4 percent coupon (paid semiannually) bond, with a $1,000 face value and 19 years remaining to maturity. The bond is selling at $965. b. An 8.4 percent coupon (paid quarterly) bond, with a $1.000 face value and 10 years remaining to maturity. The bond is selling at $901. c. An 11.4 percent coupon (paid annually) bond, with a $1,000 face value and 6 years remaining to maturity. The bond is selling at $1,051. (For all requirements, do not round intermediate calculations. Round your percentage answers to 3 decimal places. (e.g., 32.161)) Yield to maturity b. Yield to maturity Yield to maturity a C. % per year % per year % per year

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Refer to Table 10-1, assume interest rates in the market (yield to maturity) are 9 percent for 20 years on a bond paying 10 percent. a. What is the price of the bond? Bond price b. Assume 10 years have passed and interest rates in the market have gone up to 12 percent. Now, using Table 10-2 for 10 years, what is the price of the bond? Bond price c. What would your percentage return be if you bought the bonds when interest rates in the market were 9 percent for 20 years and sold them 10 years later when interest rates were 12 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Return on investment %

Bond Price Bond Par Value $ 1,000 Coupon rate Yield to Maturity 5% 7% Term in Years 7 Bond Price Bond Yield Bond Par Value $ 1,000 Coupon rate 5% Term in Years 7 Bond Price 980.00 Bond YTM %24

Bond Q Bond R Annual Coupon Rate 7% 6.5% Maturity Value $1,000 $1,000 Years to Maturity 4 BEY 7.1% 7.1% Suppose that the yield for bonds of similar risk to Bonds Q and R rise from 7.1% to 7.5%. Calculate the Bond Price Elasticity for Bond Q under these conditions. b. Calculate the Bond Price Elasticity for Bond R under these conditions. E

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Question 4 Consider the following three bonds: Bond P Bond Q Bond R $1,000 $1,000 $1,000 Par Value Coupon Rate Time to Maturity 5.00% 5.50% 0% 3 years 5 years 6 years Required Yield 4.00% 7.00% 5.20% (a) Explain the term "coupon rate". (b) Calculate the present values of each bond. State whether the bond is above par, at par or below par. (c) Bond ratings are an important element of the bond market. Explain what bond ratings are, who issues the ratings, and what the ratings mean to the average investor.

QUESTION 12 Consider a 4-year 5% coupon bond selling for $102. The yield to maturity is 4%, and the par value for this bond is $100. Calculate the actual price of the bond for a 50 basis-point increase in interest rates. O A. $103.726 O B. $101.812 O C. $104.762 D. $99.23 QUESTION 13 Based on Question 12 above, estimate the price of the bond for a 100 basis-point increase in interest rates. O A. $101.812 O B. 3. $99.24 O C. $100.00 D. $104.342

f 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 9%, the maturity risk premium on all 10- wear bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T- bonds, what is the default risk premium on the corporate bond? Select the correct answer. O a. 2.64% O b. 2.16% O c. 2.88% d. 2.40% e. 3.12% Please give proper solution and without plagiarism

QUESTION 3 Model Inc. has semiannual bonds in the market. 8-year semiannual bond which pays10%coupon rate sells at$1,100. Calculate the yield to maturity on these bonds.5%10%8.27\% 4.13\%

TABLE 3.9 END-OF-YEAR PAYMENTS Year 1 Year 2 Year 3 Bond B Bond C Bond A Bond A 100 100 100 + 1,000 Consider the four bonds having annual payments as shown in Table 3.9. All of the bonds have a 15% yield. Which bond has the highest price? Bond D Bond B 50 50 50 + 1,000 Bond C 0 0 0 + 1,000 Bond D 0 + 1,000 0 0

TABLE 3.9 END-OF-YEAR PAYMENTS Bond A Bond B Bond C Bond D Year 1 100 50 0+1,000 Year 2 Year 3 100 50 100 +1,000 50+1,000 0+ 1,000 Consider the four bonds having annual payments as shown in Table 3.9. All of the bonds have a 15% yield. Which bond has the highest price? Bond A Bond B Bond C Bond D O ooO