First, we have US five-year bonds, issued on April 1, 2020, and with a 1% annual coupon. Second, there are the debt securities of Nordea, a Finnish private bank, due on August 18, 2027, and with a coupon of 3.75% per year (issued in dollars). Finally, another option is JP Morgan bonds with a 3-month LIBOR variable coupon plus 0.25%, which mature on December 31, 2025. The discount rate for all public debt is 2.5%, while for private debt it is 3.5%. Likewise, the notional amount of all bonds is $1000, and the current date is July 1, 2023. Answer the following questions: If the fixed discount rate depends on the 3 month LIBOR, would the variable coupon bonds last? Why?

First, we have US five-year bonds, issued on April 1, 2020, and with a 1% annual coupon. Second, there are the debt securities of Nordea, a Finnish private bank, due on August 18, 2027, and with a coupon of 3.75% per year (issued in dollars). Finally, another option is JP Morgan bonds with a 3-month LIBOR variable coupon plus 0.25%, which mature on December 31, 2025. The discount rate for all public debt is 2.5%, while for private debt it is 3.5%. Likewise, the notional amount of all bonds is $1000, and the current date is July 1, 2023. Answer the following questions: If the fixed discount rate depends on the 3 month LIBOR, would the variable coupon bonds last? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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First, we have US five-year bonds, issued on April 1, 2020, and with a 1% annual coupon. Second, there are the debt securities of Nordea, a Finnish private bank, due on August 18, 2027, and with a coupon of 3.75% per year (issued in dollars). Finally, another option is JP Morgan bonds with a 3-month LIBOR variable coupon plus 0.25%, which mature on December 31, 2025. The discount rate for all public debt is 2.5%, while for private debt it is 3.5%. Likewise, the notional amount of all bonds is $1000, and the current date is July 1, 2023. Answer the following questions: What is the price of US Treasury bonds and Nordea bonds? What is the price of JP Morgan bonds, assuming that the 3 month LIBOR remains constant at 4% until maturity?
First, we have US five-year bonds, issued on April 1, 2020, and with a 1% annual coupon. Second, there are the debt securities of Nordea, a Finnish private bank, due on August 18, 2027, and with a coupon of 3.75% per year (issued in dollars). Finally, another option is JP Morgan bonds with a 3-month LIBOR variable coupon plus 0.25%, which mature on December 31, 2025. The discount rate for all public debt is 2.5%, while for private debt it is 3.5%. Likewise, the notional amount of all bonds is $1000, and the current date is July 1, 2023. Answer the following questions:
At the end of March 2019, a Zambian corporate bond had a coupon rate of 6%, a par (face) value of K1,000 and will mature in March 2022. Market rates of interest are currently 4.5%.Required:A. Using the data given above and assuming semi-annual coupons and a semi-annual discount rate equal to 2.25%, calculate the value of the corporate bond.B. Calculate the Macaulay duration of the Zambian corporate bond described above assuming annual coupons and discount rate.C. Explain Macaulay duration and describe the main characteristics of Macaulay duration in relation to bonds.D. Explain modified duration and explain the limitations of using this measure
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A bank has issued a bond on April 1st 2020 which pays coupons at a rate of 3% of the nominal value twice a year in arrears. Coupon payments are due on 1st April and Ist October and the bond is redeemable at 110% of nominal on Ist September 2030. (a) An investor purchases the bond on 1st March 2021. Show that the price of the bond is approximately £76 per £100 nominal assuming a gross redemption yield of 7%. (b) The investor pays income tax at 40%. In addition, assume that the inflation rate is constant at 1.5%. Calculate the investor's net real rate of return assuming she holds the bond until maturity. State any approximations made.