Please correct answer and don't used hand raiting and don't used Ai solution A PO and IO class of securities is formed backed by a $7,500,000 pool of 10-year FRMSmaking annual payments with a 10% interest rate. There are no prepayments or servicer/guarantee fee. What is the present value of the PO class if the discount/market rate is 9%?Excel is recommended for this problem.Same setup as above. What is the present value of the IO class if the discount/market rate is 9%?

To accurately assess the present value of Principal Only (PO) and Interest Only (IO) classes of…

Answered: A PO and IO class of securities is…

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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Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Zero-coupon YTM 1 6.30% 2 6.90% 3 7.30% 4 7.70% 5 8.00% What is the price of a three-year, default-free security with a face value of $1,000 and an annual coupon rate of 8%? What is the yield to maturity for this bond? What is the price of a three-year, default-free security with a face value of $1,000 and an annual coupon rate of 8%? The price is $1894.57. (Round to the nearest cent.)
Assume the following facts: a 10-yr bond, callable at 980 after 2 yrs, face value of 1000, priced to sell at 11% required rate of return, and pays a coupon of 10% (paid semiannually). The bond is valued today at 940.25. The problem with this valuation is that A. it assumes all cash flows are known with certainty B. it assumes all cash flows are not known with certainty C. it does not assume any reinvestment rate D. the bond should be selling at a premium
Assume the zero-coupon yields on default-free securities are as summarized in the following table: in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 4 5 Zero-coupon YTM 6.00% 6.40% 6.70% 7.10% 7.40% What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? (Click on the following icon
Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table: Maturity (years) Price (per $1,000 face value) 1 2 3 $970.76 $939.38 $904.87 Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value of $1,000 has a price today of $1,181.95. Is there an arbitrage opportunity? If so, show specifically how you would take advantage of this opportunity. If not, why not? Is there an arbitrage opportunity? (Select the best choice below.) O A. No О В. Үes OC. Not enough information. How would you take advantage of the arbitrage opportunity? (Select from the drop-down menus.) Buy V coupon bond(s), sell short V one-year Zero(s), sell short two-year Zero(s), and sell short three-year Zero(s). This would result in a net profit of $ (Round to the nearest cent.)
Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table: Maturity (years) Price (per $1,000 face value) 1 2 3 $974.87 $943.86 $911.70 Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value of $1,000 has a price today of $1,190.89. Is there an arbitrage opportunity? If so, show specifically how you would take advantage of this opportunity. If not, why not? Is there an arbitrage opportunity? (Select the best choice below.) O A. No B. Yes C. Not enough information.
Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 4 5 Zero-coupon YTM 4.30% 4.70% 5.10% 5.30% 5.50% What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000 Question content area bottom Part 1 The price is ___$enter your response here.(Round to the nearest cent.)
Lantech investor is deciding between two bonds: Bond A pay $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Par value of the bonds is $1,000. A. What is the current yield on both bonds? B. Which bond should be chosen and why? C. A drawback of current yield is that is doesn't consider the total life of the bond. E.g. Yield to maturity on Bond A is 8.33 percent. What is the yield to maturity on Bond B? D. Is your answer changed from parts B and C based on which bond should be chosen?
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 7% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 7%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $10 million.
The annual yield on a 4-year corporate security is 6.875 percent, while the annual yield on a 6-year corporate security is 7.85 percent. Assume that the real, risk-free rate of interest is expected to be constant over time at 2 percent, the default risk and liquidity premium on both securities is equal to 1.75 percent. Also assume that the maturity risk premium for all securities can be estimated as MPRt = (0.15%)*(t-1) where t is the number of periods until maturity. your analysis shows that the expected rate of inflation for year 2 is 2%. Year 3 is 3.5%. The expected rate of inflation for year 5 is 4.5%. Determine the anticipated rate of inflation for year 6.
You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days. The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon bond is 0.9634. Which one of the following method is the correct method to create the synthetic FRA? Explain. [Professor’s note: This is a challenging questions]. A) Borrow one 150-day bond and invest in 1.02 of the 310-day bondsB) Borrow two 150-day bonds and invest in 0.98 of the 310-day bonds C) Lend one of the 150-day bonds and borrow 1.02 of the 310-day bonds D) Lend two of the 150-day bonds and borrow 0.98 of the 310-day bonds
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 11%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $95 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)
Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Zero-coupon YTM What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? The price is $ (Round to the nearest cent.) 1 6.10% 2 6.50% (...) 3 6.70% 4 7.10% 5 7.30%

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