Fin 6314 Quiz 2

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8.5 You want to construct a bond portfolio to immunize the interest-rate risk of a liability of $2,000 after 10 years. You have the choice of three annual coupon bonds with the following information: Bond 1 Bond 2 Bond 3 3% Coupon rate Face value 0% 5% $100 $1,000 $1,000 Macaulay duration 12 years 8 years 9 years Which bonds can you choose to form the bond portfolio? A. Bond 3 B. A mix of Bonds 1 and 2 C. A mix of Bonds 2 and 3 D. None of the above.

Question 4 (a) Consider a 3-year forward contract to buy a coupon-bearing bond thatwill mature 3-years from today. The current price of the bond is $120. Suppose that on that bond 3 coupon payments of $10 are expected after 12, 24, and 36 months. We assume that the 12M, 24M, and 36M risk-free interest rates (continuously compounded) are 1.75%, $2.1, and 2.5% per annum, respectively. Determine the strike price, the forward price and the value of the forward contract.(b) 18 months later, the price of the bond is $105 and the risk-free interest rates for maturity 6M and 18M (continuously compounded) are 1.1% and 1.9% per annum, respectively. What are the strike price, the forward price and the value of the forward contract?

Question #3: Bond Pricing and Bond Return (a) A 20 year $1000 face value coupon bond that pays an coupon rate of 12%. The YTM = 15%. Assume that the coupon payment is paid semi-annually. (b) Suppose that next year, the YTM falls to YTM = 13%. Calculate the new price of the bond from Part (a). [Hint: One year has passed since the bond was initially purchased.] (c) Use your answers from Parts (b) and (c) to calculate the one year holding period return of the coupon bond.

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Can you please walk me through this? Problem 6-11 DEFAULT RISK PREMIUM A company’s 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5 2% per year, and the real risk-free rate (r*) is 2.3%. The average inflation premium is 2 5%; and the maturity risk premium is estimated to be 0.1 x (t 1) %, where t = number of years to maturity. If the liquidity premium is 1%, what is the default risk premium on the corporate bonds?

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Consider a bond with a current value of   $928.01. It is a 10​-year, $1,000 ​bond, coupons paid​ semi-annually, and has a 7% coupon rate. a. The​ bond's yield to maturity​ (YTM) is: b. What will be its value​ (per $1,000 of​ face) if its YTM changes to 10%​?       Question content area bottom Part 1 a. The YTM is enter your response here​%. ​(Round to two decimal​ places.)   b. Value​ (per $1,000 of​ face): ​$enter your response here. ​(Round to the nearest​ cent.)

QUESTION 2 A 4.5 percent coupon bond with 12 years left to maturity is priced to offer a 6 percent yield to maturity. What is the price of the bond? Assume interest payments are paid semi-annually. QUESTION 4 A firms is considering a project which costs $1,000. The cash flows for the first 5 years are as follows: year 1: $200, year 2: $250, year 3: $350, year 4: $600, year 5: $600. The cost of capital is 10 percent. Compute the Payback statistic for the project. QUESTION 11 If a company's current stock price is $74.50 and it is likely to pay a $3.50 dividend next year. Since analysts estimate the company will have a 10% growth rate, what is its expected return? QUESTION 17 A company has a beta of 1.3. If the market return is expected to be 16 percent and the risk-free rate is 6 percent, what is the company's required return?