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

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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2. The quoted price of a bond with a coupon rate of 4.5%, payable semi-annually, maturing on March 1, 2023, is $990. The last coupon payment was made on March 1, 2019. If you buy the bond on July 1, 2019, what is the total price you must pay for the bond?
Two years ago (i.e., in November 2018), you purchased a newly-issued 30-year Treasury bond with a coupon rate of 3.25% (APR with semi-annual compounding). The face value of the bond is $10,000 and you purchased it at the face value. The bond pays semi-annual coupons each November and each May. The coupon payment for November 2020 has just been made and you expect to obtain the next coupon payment exactly six months from today in May 2021. The bond matures after exactly 28 years in November 2048. The current yield to maturity (i.e., in November 2020) on this bond is 1.60% (APR with semi-annual compounding) due to the recent rate declines by the Federal Reserve and due to the slowdown of the economy. What is the current price of this bond?
It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has an 8.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108-that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % b. If you bought this bond, which return would you actually earn? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. III. Investors…
It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has an 8.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108—that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % If you bought this bond, which return would you actually earn? Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. Investors would expect…