The answers I need was how many bonds to be issued. I want the calculations. Thank you! Suppose you are required to fund a portfolio of homogeneous $330 million fixed-rate loanswith 3-year maturities and 8 percent interest per annum with repayments in equal yearlyinstalments using two types of bonds. One bond is an 8%, $1,000 bond maturing in 3 years,and the other is an 8%, $1,000 bond maturing in 1 year. Assume annual coupon payments forboth bonds.If the treasury management section of the bank is attempting to minimise interest rate risk, howmany bonds should be issued?

In order to minimize the risk, the treasury management must match the duration. It must calculate…

Answered: If the treasury management section of…

If the treasury management section of the bank is attempting to minimise interest rate risk, how many bonds should be issued?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

Consider two bonds. The first is a 6% coupon bond with six years to maturity, and a yield to maturity of 4.5% annual rate, compounded semi-annually. The second bond is a 2% coupon bond with six years to maturity and a yield to maturity of 5.0%, annual rate, compounded semi-annually. a. Draw a cash flow diagram for each bond. b. Calculate the current price per $100 of face value for each bond.
Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.8%, with semiannual payments.
Consider a 20-year bond with a face value of $1,000 that has a coupon rate of 5.7%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline. (Round to the nearest cent.)
A portfolio consists of two types of loans. The first is a $30 million loan that requires a single payment of $37.8 million in 3 years, with no other payments until then. The second loan is for $40 million. It requires an annual interest payment of $3.6 million. The principal of $40 million is due in 3 years. Assume that the current interest rate is 9%. a. Complete the following table to compute the duration of the second loan. Note: You may copy the table, paste it on your Word document and complete it. 1 Year 2 3. Sum Cash payments 3.60 3.60 43.60 ($million) Present value |(PV) of cash payments ($million) Weighted PV |(%) Weighted maturity (years) a. Compute the duration of the portfolio. c. What will happen to the value of the portfolio if the general level of interest rate increases from 9% to 9.5%?
Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.9%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline. a. What is the coupon payment for this bond? The coupon payment for this bond is $ (Round to the nearest cent.)
Suppose that the interest rate on one-year bonds is currently 4 percent and is expected to be 5 percent in one year and 6 percent in two years. Using the expectations hypothesis, compute the yields on two- and three-year bonds and plot the yield curve.
Suppose that the current 6-month, 1-year, 1.5-year and 2-year interest rates are 2.2%,3%, 3.5% and 3.75%, respectively. a) Calculate the prices of 1-year and 2-year Treasury bonds. In each case, assume theface value of £100 and the coupon rate of 5% per annum and that coupons arepaid annually. Assume continuous compounding. b) Calculate the prices of the bonds from a), applying annual discounting. Compareyour results to those obtained in a).
A 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume that the interest rate is equal to 8% per year. What is the bond’s price? What is the reason for the difference in price on an annual and semiannually basis? Discuss the role of financial managers.
Submit your solutions as an Excel document. Be sure to clearly label the various parts of the problem. 1. Consider the following two bonds that make semi - annual coupon payments. Assume the first coupon payment occurs in exactly six months, and the bond has a face value of $1000. Coupon Rate Time to Maturity YTM Bond A 3.80% 8 years 3.6% Bond B 3.80% 18 years 4.2% a.) What is the current price (t = 0) of Bond A? Be sure to set up the valuation equation. b.) What will be the price of Bond A exactly halfway in between t = 0 and the first coupon date? c.) Using a spreadsheet, plot the price - yield relationship for both Bond A and Bond B on the same set of axes. Do this for a range of yields from 2% to 11% (in increments of 50 basis points). d.) Use a spreadsheet to compute the annualized Macaulay duration and modified duration for Bond A at a yield - to - maturity of 3.6%. Provide an interpretation of the modified duration with regards to maturity and interest rate risk. e.) Use a…
A)calculate the value of a bond that matures in 12 years and has a 1000 par value . the annual rate is 8% and the markets required yield to marurity on a comparable risk bond is 12% b) what will be the value of the bond be if the payments are semi annual? c) explain the four relationships of a corporate bond.
For a company, you plan to buy the following bond: Time to maturity, 6 years; coupon rate, 8%; Coupon payment, annual; Market interest rate, 8%; Face value, $1,000. Using Excel, calculate the duration of the bond. Using Excel, calculate the accumulated value of invested payment(or receipt) when you find market interest rate a year later is now 8%, 9%, and 7%, respectively. Using Excel, calculate geometric average rate of return (or realized compound return).
) Consider buying a 1000 pbr bond at the market price of 800 pbr. The bond paysdividends semiannually at a rate of 8% per year over 10 years (i.e. The bond matures in 10 years).(a) Calculate the coupon rate?(b) Calculate the dividend amounts /Coupon interest payments.(c) Draw the cash flow diagram for the bond investment.(d) Calculate the effective annual yield.