As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bondwith a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in years2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the estimated new bondprice using the duration model if the YTM increases by 100 basis points?OA. $1.0149 millionOB. $1.0496 millionOC.$0.9802 millionOD. $0.9795 million

Price of the bond is the present value of cash flow from the bond and present value of par value of…

As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bona with a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the estimated new bond price using the duration model if the YTM increases by 100 basis points? OA. $1.0149 million OB. $1.0496 million OC. $0.9802 million D. $0.9795 million

As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bona with a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the estimated new bond price using the duration model if the YTM increases by 100 basis points? OA. $1.0149 million OB. $1.0496 million OC. $0.9802 million D. $0.9795 million

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 manage a pension fund that will provide retired workers with lifetime annuities. You expect a large number of workers to retire in 8 years. You have the following two bonds to invest in and immunize this portfolio. Inputs Bond A Bond B Settlement date 01-01-2020 01-01-2020 Maturity date 01-01-2025 01-01-2040 Coupon rate 0.025 0.0000 Face Value $1,000.00 $1,000.00 Coupons per year 1 1 Obligation Time to Payout 8 Payout $50,000,000 Initial Yield to Maturity 0.0750 Required: Using any necessary data above, calculate the Present value and Macaulay Duration of the obligation. Assume annual payments. Then calculate the Macaulay Duration and the Modified Duration for each bond. Use this information to immunize the portfolio. Then, re-immunize the portfolio 1 year later using the new yield.
Can I get the answers to 8.1 and 8.2.
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