9. An investor purchases 5 zero-coupon bonds, with years. Each bond has a maturity value of 1,000, and is priced based on the following yield curve: Term (yrs.) Spot rate 1 2.4% 2 3.0% 3 3.4% 4 3.7% 5 3.9% What is the modified duration of the investor's portfolio?

9. An investor purchases 5 zero-coupon bonds, with years. Each bond has a maturity value of 1,000, and is priced based on the following yield curve: Term (yrs.) Spot rate 1 2.4% 2 3.0% 3 3.4% 4 3.7% 5 3.9% What is the modified duration of the investor's 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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You have purchased a bond for $973.02. The bond has a coupon rate of 6.4%, pays interest annually, has a face value of $1,000, 4 years to maturity, and a yield to maturity of 7.2%. You expect that interest rates will fall by .3% later today. a) Calculate the bond’s macauly duration b) Use the modified duration to find the approximate percentage change in the bond's price. Find the new price of the bond from this calculation. c) Suggest how the estimate in part (b) can be improved.
5. To create a portfolio with a duration of 4 years, using a 5-year zero-coupon bond and a 3 year 8% annual coupon bond with a yield to maturity of 10%, one would have to invest % of the portfolio value in the zero-coupon bond. (Hint: First find duration of the coupon bond and use the fact that the duration of a bond portfolio is equal to the sum of duration of each bond x each bond's portfolio weight) A) 50 B) 55 C) 60 D) 65
1) Explain the concept of interest rate risk in bond investment 2) show a numerical example of it by calculating % changes in price for 1 year and 3-year annual coupon bonds. Assume coupon interest rate = 12%, Yield to Maturity = 6%, Face value= 100. Use 2% increase in YTM (i.e., 6% → 8%).
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Consider two zero coupon bonds. Both have face values of $100. Bond A pays its face value in 8 years, and Bond B pays its face in 2 years. If interest rates change from 9% to 7%, what is the percentage change in the long maturity bond's price minus the percentage change in the short maturity bond's price?
The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1 5.2% 2 6.2 3 7.2 Next year at this time, you expect it to be: Maturity (Years) YTM (%) 1 6.2% 2 7.2 3 8.2 Required: What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? Is the market's expectation of the return on the 3-year bond greater or less than yours?
Consider a four year annual bond paying a 7% coupon, with a yield to maturity of 6.0%. What is the duration of the bond? Multiple Choice O O O 3.631 3.785 3.814 3.965
Nikul
Consider information on the following bonds (with face value 100): Bond Maturity (years) Coupon rate Yield-to-maturity А 1 0% 5.0% В 2 5% 5.5% C 3 6% 6.0% Coupons are paid annually. What is the three-year spot interest rate?
Compute the price of a risk-free bond with a face value of $1,000 that has seven years left to maturity, a coupon rate of 5%, and annual interest payments. Assume it just made a coupon payment (i.e., it has seven annual payments left). The current term structure of risk-free rates is provided below. Face value Coupon rate $ 1,000.00 5.00% Term structure Maturity 1 2 3 4 5 6 7 Risk-free yields 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Coupon payment Face value Cash flows PV (CF) Price
Assume that a bond will make payments every six months as shown on the following timeline (using six- month periods): Period 0 Cash Flows $20.87 a. What is the maturity of the bond (in years)? b. What is the coupon rate (as a percentage)? c. What is the face value? 2 $20.87 *** a. What is the maturity of the bond (in years)? The maturity is years. (Round to the nearest integer.) 39 $20.87 40 $20.87 + $1,000
A general power bond varies a coupon rate of 9.2%, has 9 years until maturity, and sells at a yield to maturity of 8.2%. a. Wage interest payments do bond holders receive each year? b. At what price does the bond sell? c. What will happen to the bond price if the yield to maturity falls to 7.2%?d. If the yield to maturity falls to 7.2%, will the current yield be less, or more, than the yield to maturity, and by what percent?

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