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 Macaulay duration, the modified duration of US Treasury bonds and the duration of the Nordea bonds? 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: What is the Macaulay duration, the modified duration of US Treasury bonds and the duration of the Nordea bonds? 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

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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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:
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