2021 3) Assumed XYZ is a fast growing Technology Company. You believe that the data given in Question 1 will persist for the next 3 years. But, beyond the next 3 Year, you believe it22 will grow at a normal economic growth rate. Your economic forecast for U.S, economy is 1.5% growth annually. Recalculate your Fair Value of XYZ23242526278901234)45Fair Value Based on 2 Stage DDM isDPS*(1+g)Present Value1.0077) Microsoft Corporation's (ET)2.003.00Terminalvalue"The terminal value calculated using the Gordon Constant Growth Model at time nWhat is the value of a 10 year, $1,000 par value bond issued by The American Express Corporation with a coupon rate of 2.83% paid semiannually based on current 10 yearyield rate of 2.5%?Bond Value $If the Modified Duration of the bond is question 4 is 1.50, calculate the approximate $ change in bond price if the Fed next move is to increase interest rate by 25 bps(25%) [Make sure your change in Bond Price is the correct sign]Change in Bond Price $675)B9D1236) Microsoft Corporation (MSFT) is currently trading at $53.93. You are holding a long Put with a strike price of $50.00. Let's assumed you have also paid $5 premium for the LongPut [Make sure your profit is the correct sign: negative for a loss]Profit or Loss $:

Bond valuation is a technique to determine value of bond including discounted present value of…

Answered: stant Growth Model at time n What is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A 20 -year maturity bond with par value of $1,000 makes semiannual coupon payments at a coupon rate of 8%. Find the bond equivalent and effective annual yield to maturity of the bond if the bond price is: a. $950 b. $1,000 c. $1,050 Repeat Problem 11 using the same data, but now assume that the bond makes its coupon payments annually. Why are the yields you compute lower in this case? Solve ex 12.
A zero-coupon bond with 4 years to maturity, trading for $916.96 and is expected to have it's annual YTM jump by 1% when the Federal Reserve announces its rate adjustments. What is the duration estimated price change (in dollars,$) when the announcement is made? Answer:
Determinant of Interest Rates The real risk-free rate of interest is 4%. Inflation is expected to be 1% this year and 5% during each of the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Round your answer to two decimal places.
You Answered orrect Answer A company is promising a coupon payment of $46 in 2.03 years. A risk free government bond of the same maturity is yielding 1.66% per year. The credit spread for the promised payment by the company is 1.24% per year. Both the yield and the spread are stated on a continuously compounded basis. What is the present value of the expected loss on the promised payment? 1.11 margin of error +/-50
Treasury spot rates are as follows in today's market: Maturity (years) 1 2 3 Spot rate 1.9% 2.8% 3% One year ago, a 3-year Treasury note ($1,000 face value, 5.2% coupon rate and pays annual coupon) was issued. This security paid out its first coupon yesterday. Based on the spot rates in the table, this security should be fairly priced TODAY at $1,046.5. (hints: is this coupon bond still a 3-yr bond as of TODAY?) However, the bond is traded at $1,043 in the market today, what is the YTM? Round to 4 decimal places.
Bond The effect of coupon rate (PMT) on interest rate sensiti 10-year, 10% annual coupor 10-year, 20% annual coupon 10-year, zero coupon 0 The effect of time to maturity on interest rate sensitivit 10-year, 15% annual coupon 5-year, 15% annual coupon Price @YTM-8% Price @YTM= 7% Percentage Change in price 1134.21 1210.66 6.74 463.2 508.3 9.74
Manshuk
Using duration and convexity approximation, compute the percentage price change on a 10-year fixed coupon bond, if the interest rate increases by 1%. The modified duration of the bond is 6 years, and convexity is 200 year2. Group of answer choices -6% -5% 7% -7%
Finance Consider a zero-coupon bond that will pay the face value of $1,000 in September 2023. In September 2021, we enter a long position in a forward contract on the zero-coupon bond. The forward will expire one year from now, and the forward price is $980. Suppose that a year later, in September 2022, the term structure turns out to be as follows: Maturity (years) Spot rate (% per annum) (continuous compounding) 1 5% 2 6% What is the payoff for the long position in the forward?
Fixed Income Securities4. Today is t = 0. You have just bought a five-year zero-coupon Treasurybond with $100 face value. You paid $80.(a) What is the annually compounded yield to maturity on the bond?(b) Suppose that yields at all maturities decrease to 2% immediately after you havepurchased the bond. Calculate the annualized holding period return if you sellthe bond one year after you have purchased it, at t = 1.(c) What is the annually compounded yield to maturity on the bond at t = 1?
Question 2 Assume the yield curve is flat shown as following table. A cash and $duration-neutral butterfly is to be constructed by selling one thousand 7-year coupon paying bonds and purchasing qs and ql coupon paying bonds with maturities 3 and 15 years respectively. More information on the bonds to be used in the strategy is given Note that we are assuming all bonds pay interest semi-annually. (a) Explain how to interpret the modified duration of -8.86 corresponding to the 15-year maturity bond. (b) Write down the system of equations that needs to be solved in order to find qs and ql and verify that the solution to this system is qs = 679.32 and ql =366.23. (c) Find the profit from this strategy if yield curve moves: (i) up to 8% pa and (ii) down to 5% pa. (d) Explain why in practice it may be difficult to profit from the cash and $duration neutral butterfly. (e) Explain the major differences between the 50-50 butterfly strategy and the cash and $duration neutral butterfly.
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