8.5 You want to construct a bond portfolio toimmunize the interest-rate risk of a liability of$2,000 after 10 years. You have the choice ofthree annual coupon bonds with the followinginformation:Bond 1 Bond 2 Bond 33%Coupon rateFace value0%5%$100$1,000 $1,000Macaulay duration 12 years 8 years 9 yearsWhich bonds can you choose to form the bondportfolio?A. Bond 3B. A mix of Bonds 1 and 2C. A mix of Bonds 2 and 3D. None of the above.

Macaulay duration is the time period an investor must hold the security so that the initial price…

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: Coupon rate Face value Macaulay duration Bond 1 Bond 2 Bond 3 0% 3% 5% $100 $1,000 $1,000 12 years 12 years 8 8 years years 9 years Which bonds can you choose to form the bond portfolio?

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: Coupon rate Face value Macaulay duration Bond 1 Bond 2 Bond 3 0% 3% 5% $100 $1,000 $1,000 12 years 12 years 8 8 years years 9 years Which bonds can you choose to form the bond portfolio?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Bond A is a $1,000, 6% quarterly coupon bond with 5 years to maturity.(a) If you bought Bond A today at a yield (APR) of 8%, what is your purchase price? Is this apremium or discount bond? Why?)(b) One year later, Bond A's YTM (APR) has gone down to 6% and you sell it immediately afterreceiving the coupon.(i) What is the current yield? (ii) What is the capital gains yield? (iii) What is the one-year total rate of return (in APR) if the coupons are reinvested at 2%per quarter during the holding period? (iv) Can Bond A’s one-year total rate of return be determined correctly by simply adding upthe current yield and the capital gains yield? Explain your answer without calculations.(c) Consider two other bonds: Bond B and Bond C.Bond B: A $1,000, 7% quarterly coupon bond with 4 years to maturityBond C: A $1,000 zero coupon bond with 2 years to maturity(i) Without calculation, briefly explain which bond in the following pairs has higherinterest rate risk.1) Bond A vs. Bond B 2) Bond B vs.…
6. You are obligated to pay $10,000 in a year. There are two bonds with the following information Bond A Bond B Time to maturity 2 years 0.5 year Coupon rate 7% 5% Price $101.86 $99.51 The yields for both bonds are 6%. Construct a portfolio of bonds A and B using the immunization technique.
Consider 3 bonds with 5.4% coupon rates, all making annual coupon payments and all selling at face value.The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years. a. What will be the price of the 4-year bond if its yield increases to 6.4%? b. What will be the price of the 8-year bond if the yield increases to 6.4%? c. What will be the price of the 30-year bond if the yield increases to 6.4%? d. What will be the price of the 4-year bond if its yield decreases to 4.4%? e.What will be the price if the 8-year bond if its yield decreases to 4.4%? f. What will be the price of the 30-year old bond if its yield decreases to 4.4%? g. Comparing your answers to parts (a), (b), and (c), are long-term bonds more or less affected than short-term bonds by a rise in interest rates? h. Comparing your answers to parts (d), (e), and (f), are long-term bonds more or less affected than short-term bonds by a…
A $1,000 bond has a coupon of 4 percent and matures after tên years. ASsume that the bond pays interest annually. a. What would be the bond's price if comparable debt yields 6 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ b. What would be the price if comparable debt yields 6 percent and the bond matures after five years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. c. Why are the prices different in a and b? The price of the bond in a is -Select- v than the price of the bond in b as the principal payment of the bond in a is -Select- v than the principal payment of the bond in b (in time). d. What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places. The bond matures after ten years: CY: % YTM: % The bond matures after five years: CY: YTM:
Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $ 996.04 895.89 833.92 772.80 675.18 Required: a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $1,000. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5-year zeros)? b. What are the cash flows on this strategy in each year? c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? d. & e. Confirm that the effective 2-year forward interest rate equals (1 + f4) ×(1 + f5)-1. You therefore can interpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2-year forward rate equals (1 + y5) 15 + (1+y3) ³. - 1
Simplest way pls

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