Homework 1
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Finance
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Homework 1 (FIN 424-Fall2023)
[Submit in Brightspace, by Wednesday, October 4, 2023 for Questions and by November 15, 2023 for Bloomberg BMC]
Chapter 4
4. Answer the below questions for bonds A and B.
Bond A
Bond B
Coupon
8%
9%
Yield to maturity
8%
8%
Maturity (years)
2
5
Par
$100.0
0
$100.00
Price
$100.0
0
$104.055
Modified Duration
1.815
3.994
Convexity
4.277
19.764
(a)
Calculate the actual price of the bonds for a 100-basis-point increase in interest rates.
(b)
Using duration, estimate the price of the bonds for a 100-basis-point increase in interest rates.
(c)
Using both duration and convexity measures, estimate the price of the bonds for a 100-basis-point
increase in interest rates.
(d)
Comment on the accuracy of your results in parts b and c, and state why one approximation is closer to
the actual price than the other.
(e)
Without working through calculations, indicate whether the duration of the two bonds would be higher
or lower if the yield to maturity is 10% rather than 8%.
6. State why you would agree or disagree with the following statement: When interest rates are low, there
will be little difference between the Macaulay duration and modified duration measures.
14. Answer the below questions.
(a)
Suppose that the spread duration for a fixed-rate bond is 2.5. What is the approximate change in the
bond’s price if the spread changes by 50 basis points?
(b)
What is the spread duration of a Treasury security?
17. Consider the following portfolio:
Bond
Market Value
Duration (years)
W
$13 million
2
X
$27 million
7
Y
$60 million
8
Z
$40 million
14
(a)
What is the portfolio’s duration?
(b)
If interest rates for all maturities change by 50 basis points, what is the approximate percentage change
in the value of the portfolio?
(c)
What is the contribution to portfolio duration for each bond?
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Chapter 6
1. Following are U.S. Treasury benchmarks available on December 31, 2007:
US/T 3.125 11/30/2009
3.133
US/T 3.375 11/30/2012
3.507
US/T 4.25 11/15/2017
4.096
US/T 4.75 02/15/2037
4.518
On the same day, the following trades were executed:
Issuer
Issue
Yield (%)
Time Warner Cable Inc.
TWC 6.55 05/01/2037
6.373
McCormick & Co. Inc.
MKC 5.75 12/15/2017
5.685
Goldman Sachs Group Inc.
GS
5.45 11/01/2012
4.773
Based on the above, complete the following table:
Issue
Yield
(%)
Treasury
Benchmark
Benchmark
Spread (bps)
Relative Yield
Spread
TWC 6.55 05/01/2037
6.373
MKC 5.75 12/15/2017
5.685
GS
5.45 11/01/2012
4.773
13. You observe the yields of the following Treasury securities (all yields are shown on a boLnd-equivalent
basis):
Year (Period)Yield to Maturity (%)Spot Rate (%)Year (Period)Yield to Maturity (%)Spot Rate (%)
0.5 (1)
5.25
5.25
5.5 (11)
7.75
7.97
1.0 (2)
5.50
5.50
6.0 (12)
8.00
8.27
1.5 (3)
5.75
5.76
6.5 (13)
8.25
8.59
2.0 (4)
6.00
7.0 (14)
8.50
8.92
2.5 (5)
6.25
7.5 (15)
8.75
9.25
3.0 (6)
6.50
8.0 (16)
9.00
9.61
3.5 (7)
6.75
8.5 (17)
9.25
9.97
4.0 (8)
7.00
9.0 (18)
9.50
10.36
4.5 (9)
7.25
9.5 (19)
9.75
10.77
5.0 (10)
7.50
10.00 (20)
10.00
11.20
All the securities maturing from 1.5 years on are selling at par. The 0.5 and 1.0-year securities are zero-
coupon instruments. Answer the below questions.
(a)
Calculate the missing spot rates.
(b)
What should the price of a 6% six-year Treasury security be?
(c)
What is the six-month forward rate starting in the sixth year?
Bloomberg
If you have already taken the Bloomberg BMC, just submit your certificate or proof by November
15, 2023.
If you haven’t done it, take the Bloomberg BMC, then submit the certificate by November 15,
2023. The class code is
2X5L78BJH9
. Instructions to use the Bloomberg terminal can be found in
the file “BMC FIN424 HW1 Fall2023” posted on Brightspace.
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6. Problem 5-12 (Bond Yields and Rates of Return)
Window Help
Screen Shot 2023-03-06 at 8.44.56 PM
H Problem Walk-Through
a. What is the bond's yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
%
2
b. What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places.
%
eBook
Bond Yields and Rates of Return
A 25-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. The bond sells for $950. (Assume that the bond has just been issued.)
d. What is the band's yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
%
HARD
c. What is the bond's capital gain or loss yield? Capital loss yield, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.
%
$
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Q
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Please provide detailed solution and give the explanation of the concept
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usiness: BUQU 1130: Business Mathematics
Page 137
6. [HW] A $25,000, 10% bond redeemable at par on Dec 1, 2028, is purchased on September 25, 2017,
to yield 7.6^ compounded semi-annually. Bond interest is payable semi-annually.
a) What is the cash price of the bond?
b) What is the accrued interest?
c) What is the purchase price?
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E? CengageNOWv2| Online teachin x
A Login
enow.com/ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogre.
O eBook
Bond Price
United States Steel Corporation's (X) 7.5% bonds due in 2022 were reported as selling for 103.2.
Were the bonds selling at a premium or at a discount? Why is United States Steel able to sell its bonds at this price?
The bonds were selling at a
because the market rate of interest for similar quality bonds was
than 7.5%.
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Check My Work
836 AN
12/3/20
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aa.1
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2 parts a-c
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Give typing answer with explanation and conclusion
1- Imagine the bond above displayed the following details: $10,000 Matures: January 31, 2030; Interest of $200 payable June 30 and December 31 of each year. Can you calculate the annual effective interest rate for this bond?
a)2%
b)4%
c)6%
d)One cannot tell.
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Please answer in typing format
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Examplify
SM132 Final Exam Spring 2021 - Tuesday May 4 7PM | SEOE HONG
TIME REMAINING
EXAM CONTROLS
TOOL KIT :
FILTER >
Question 15
FLAG QUESTION
11
Rating
AAA
AA
A
ВВВ
12
Yield
0.80%
1.60%
2.20%
3.20%
13
Given the table above which shows typical yields for 5 year bonds of varying credit ratings, what is the most likely credit
rating of your company if your 5-year, semiannual bonds with a face value of $5,000 and a coupon rate of 5% are trading at
a price of $5,412.81?
14
15
Answers A - D
А A
BBB
СА
D
AAA
Previous
IONS
VERSION 2M.6.4
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vvk.1
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neat and clean answer needed
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Help
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Solve Bond Y using Excel
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2. Determine the purchase price and the amount of premium/discount of the given bonds.
Face Value Coupon Rate Yield Rate Redemption Date
Purchase Date
Purchase Price
?
a.
$1000.00
5.25% 5.25%
January 01, 2024
January 01, 2019
b. $5000.00
4.75%
6.75%
October 20, 2028
October 20, 2018
?
c. $10,000.00 7.85%
4.15%
August 16, 2034
August 16, 2014
?
Amount of
Premium/Discount
?
?
?
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1. Find the current bond price
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Please help me understand how to answer the last equation?
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Exercise 1 (It's only one question)What is the price displayed in specialized newspapers for the following bonds March 19, 2020, (the semi-annual coupon)?
Name of the society
Coupon rate
The price in %
Yield to maturity
Date of issue
Due date
TMS
8%
?
11%
January 04,2005
January 04,2030
FLK
5%
?
14%
April 16,2009
April 16,2024
BBL
12%
?
10%
October 19,2012
October 19,2032
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- Preview ●●● E View Edit File V Go Tools 6. Problem 5-12 (Bond Yields and Rates of Return) Window Help Screen Shot 2023-03-06 at 8.44.56 PM H Problem Walk-Through a. What is the bond's yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % 2 b. What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places. % eBook Bond Yields and Rates of Return A 25-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. The bond sells for $950. (Assume that the bond has just been issued.) d. What is the band's yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % HARD c. What is the bond's capital gain or loss yield? Capital loss yield, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. % $ Save & Continue Continue without saving Q 0…arrow_forwardPlease provide answer in excel format Please provide detailed solution and give the explanation of the conceptarrow_forwardusiness: BUQU 1130: Business Mathematics Page 137 6. [HW] A $25,000, 10% bond redeemable at par on Dec 1, 2028, is purchased on September 25, 2017, to yield 7.6^ compounded semi-annually. Bond interest is payable semi-annually. a) What is the cash price of the bond? b) What is the accrued interest? c) What is the purchase price?arrow_forward
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