Number 2: Using the interest rate tree below, find the correct price for a three-year, annual-pay bond with a coupon rate of 5%. Three-Year Binomial Interest Rate Tree Time 0 Time 1 Time 2 8.0% 5.0% 2.0% 6.0% 3.0% 4.0%
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![Number 2:
Using the interest rate tree below, find the correct price for
a three-year, annual-pay bond with a coupon rate of 5%.
Three-Year Binomial Interest Rate Tree
Time 0
Time 1
Time 2
8.0%
5.0%
2.0%
6.0%
3.0%
4.0%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F95a14e32-16d6-4cc3-8b8c-faf96725a204%2F26a53ff8-8875-4dab-b038-f5ef1d997a6d%2Fz9t6bg9_processed.jpeg&w=3840&q=75)
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- Question 1. Duration and Banking Consider a 5-year bond with annual coupon payments. The bond has a face value (prin- cipal) of $100 and sells for $95. Its coupon rate is 3%. (The coupon rate is the ratio between the coupon value and the face value). The face value is paid at the maturity year in addition to the last coupon payment. 1. Calculate the bond's yield to maturity (YTM) and duration using its YTM. 2. Suppose the bond's YTM changes in the same way as a 5-year T-bill interest rate. Use the bond's modified duration to evaluate the relative change in the 5-year bond's value if the interest rate on 5-year T-bills falls by one basis point, that is, by 0.0001. This part was extracted from the balance sheet of the First Bank of Australia: Assets (Billion AUD) Bond 80 Liabilities (Billion AUD) Fixed-rate liabilities 60 where "Bond" here refers to the bond we specified above and the fixed-rate liabilities (banks future payment obligations) have an average duration of 4 years and YTM of…Consider information on the following bonds (with face value 100): Bond Maturity (years) Coupon rate Yield-to-maturity А 1 0% 5.0% В 2 5% 5.5% C 3 6% 6.0% Coupons are paid annually. What is the three-year spot interest rate?Use the table below for the questions that follow, and assume semi-annual interest payments. Bond A B Coupon Rate 6% Zero coupon The duration of Bond B is Yield 4.5% 6.25% Maturity 3 years 7 years ? (round your answer to two decimal places)
- Calculate the value of a 2-year 3.5% annual pay bond given the interest rate below. What is the implied 3-year spot rate? Time Period Forward Rate z1 0.80% 1f1 1.12% 1f2 3.94% 1f3 3.28% 1f4 3.14%Suppose that the term structure of interest rates is: t 0.5 1 1.5 2 r 1% 1.2% 1.4% 1.8% Interest rates are annual interest rates that are semi-annually compounded. 1. Calculate the price and modified duration of a 1-year bond with a 6% coupon rate, with coupons paid semi-annually. The bond has a face value of 100.0 2. Calculate the price and modified duration of a 2-year bond with a 10% coupon rate, with coupons paid semi-annually. The bond has a face value of 100.0 3. Compare your results from 1 and 2 above. Which bond is more sensitive to changes in interest rates?Question 1: Consider a coupon bond with an 8% annual coupon rate, a 10% interest rate, and a $1000 face value. The bond will mature in 4 years. What is the duration of this bond? Duration is defined as a weighted average of the maturities of the cash payments. Suppose the weight assigned to the maturity of 1 year is W. A: Duration=2.28 and W=7.77% B: Duration=3.56 and W=20.5% C: Duration=3.56 and W=23.1% D: Duration=3.56 and W=7.77%
- K Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods): 0 2 5 Period $19.53 a. What is the maturity of the bond (in years)? b. What is the coupon rate (as a percentage)? c. What is the face value? Cash Flows View an example Get more help. ★ a. What is the maturity of the bond (in years)? The maturity is years. (Round to the nearest integer.) A 6 1 MacBook Pro & 7 $19.53 * 8 9 C 59 $19.53 60 $19.53+$1,000 Clear all BUB 0 {Q.consider a bond that has a coupon rate of 7.5 percent semi-annually,5 years to maturity, and is currently priced to yield 7.5%,calculate Macaulay duration.Question 1 : Consider a coupon bond with an 8% annual coupon rate, a 10% interest rate, and a $1000 face value. The bond will mature in 4 years. What is the duration of this bond? Duration is defined as a weighted average of the maturities of the cash payments. Suppose the weight assigned to the maturity of 1 year is W. Show your work. No work, no credit A: Duration 2.28 and W=7.77% B: Duration=3.56 and W-20.5% C. Duration 3.56 and W-23.1% D. Duration=3,56 and W-7.77%
- 1. Consider the following bond that pays coupon interest semi-annually. Coupon Yield to maturity Maturity (Years) Par Value Bond 8% 6% 2 $100 a) What is the price value of a basis point? Assuming one basis point decrease. b) Compute the Macaulay duration theoretically. What is the modified duration? c) Compute the approximate duration by increasing yield by 20 basis points and compare your answers with those calculated in part (b). d) Compute the convexity measure theoretically. e) When the yield increases by 20 basis points, what is the new bond price? What is the estimated bond price using duration calculated in part (b)? What is the estimated bond price using duration calculated in part (b) together with the convexity calculated in part (d)?4- Calculate the equilibrium interest rate of a 1-year discount bond with a face value of 1000. The demand and supply curves for this bond are represented by the following equations: ( B4: Price = -0.8 * Quantity + 1160 B": Price = Quantity +720Please show detailed steps and correct
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