Suppose that a portfolio management company manages an investment fund. The fund manager observes a bond in the market and intends to add it to the fund portfolio. The bond has a 100.000 TL par value, 10% coupon rate (coupon payments are annual) and a 2-years maturity. The business model is to “hold-until-maturity”. The company purchases the bond at the beginning of the year when the market yields are 12%. After exactly 1 year of investment, market yields increase to 14%. What would be the approximate profit or loss amount in the income statement for that 1-year period? A) 1.723 TL loss B) 10.191 TL profit C) 9.871 TL profit D) 1.594 TL loss E) OTHER

Suppose that a portfolio management company manages an investment fund. The fund manager observes a bond in the market and intends to add it to the fund portfolio. The bond has a 100.000 TL par value, 10% coupon rate (coupon payments are annual) and a 2-years maturity. The business model is to “hold-until-maturity”. The company purchases the bond at the beginning of the year when the market yields are 12%. After exactly 1 year of investment, market yields increase to 14%. What would be the approximate profit or loss amount in the income statement for that 1-year period? A) 1.723 TL loss B) 10.191 TL profit C) 9.871 TL profit D) 1.594 TL loss E) OTHER

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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Suppose that a portfolio management company manages an investment fund. The fund manager observes a bond in the market and intends to add it to the fund portfolio. The bond has a $100.000 par value, 10% coupon rate (coupon payments are annual) and a 2-years maturity. The business model is to “hold-until-maturity”. The company purchases the bond at the beginning of the year when the market yields are 12%. After exactly 1 year of investment, market yields increase to 14%. What would be the approximate profit or loss amount in the income statement for that 1-year period? A) $ 1,594 loss B) $ 1,723 lossC) $ 9,871 profit D) $ 10,191 profitE) Other (please specify)
Working as an investment analyst for a fund that invests in fixed-income assets, you are tasked with evaluating the efficacy of a potential investment. You are given a bond that has a 5% coupon rate and matures in 5 years. Assume comparable debt yields 7% and that the bond is sold in increments of $1,000. What is the value of one increment of the bond?
Suppose that a bond with an 8% coupon rate and semiannual coupons has a face value of $1,000, 10 years to maturity. The required rate (Yield to Maturity, YTM) is 5%. Draw a timeline to identify the amount and timing of cash flows obtained with the bond and calculate the bond value. Redo part (a) if YTM is 10%. Next, use the results of parts (a) and (b) to show the relationship among YTM, coupon rate and bond value.
You are employed by an investment bank to estimate the value of a coupon-paying bond with the following features. It has a face value of $100,000, pays quarterly coupons at a rate of 10% p.a. and the market required yield to maturity is 8% p.a. compounding quarterly. There is one full quarter until the next payment will be received and the bond matures in 4 years. Which of the following is closest to the market value of the bond? A. $106,789 B. $105,288 C. $94,871 D.$93,473 E. Need more information to answer the question I calculated and I got $106,789, is it correct?
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).
A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Suppose the bond issued by Logan Inc. has 5-year maturity with coupon of 12%. 4.1. If the yield to maturity is 10%, compute the bond value. Compute the modified duration of this bond. Use the modified duration to estimate the change in price if the interest rate decreases by 0.50%. 4.2. 4.3.
1 ) Solve the following quesitons in an Excels spreadsheet, and create a cash-flow table for each Bond A and Bond B over 6 years. a) Calculate the yield rates for two bonds described below. b) Correctly use Rate of Return (ROR) analysis to determine which, if either, bond an investor with a MARR of 10%, should purchase. c) Confirm your answer to part (b) using Present Worth Analysis. Type out formulas used and calculations performed. d) Confirm your answer to part (b) using Annual Worth Analysis. Type out formulas used and calculations performed.
Required:(i) Calculate the bond durations for Bond A and Bond B respectively using a table format.Show the formulas and workings in each column. (ii) Determine the investment decision based on the market expectation and your answer in part (i) above.
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…
YOUR BANK is thinking to issue a regular coupon bond (debenture) with following particulars: Maturity = 3 years, Coupon rate = 7.000%, Face value = $1,000.00, Coupon payments are annual and paid at the end of a year. In the fixed-income securities market, the yield curve for a bond with a similar default risk characteristics as one issued by YOUR BANK, is downward-upward sloping with the following interest rates per annum continuously compounded: Ro,1 = 8.000%, Ro,2 = 7.000%, R0,3 = 6.000%, R0,4 = 7.000%, and R0,5 = 7.500%, Where, the notation RoT is the spot-interest rate (at time t = 0) for T year maturity zero-coupon bond. As per you, what should be the issue (offer) price per bond of YOUR BANK in US dollars? (Roundoff your answer to the nearest four decimal places, in order to get as close answer as possible in Canvas.)
A bond that has features: coupon of rate of 5 percent principal: $1,000 term to maturity: 10 years a. what will the holder receive when the bond matures? b. if the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? would you expect the firm to call this bond? why? c. if the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the fundas earn 8 percent annually and there is $100 million oustanding?
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% 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 spreadsheet to calculate the annualized convexity measure of Bond A at a YTM of 3.696. f.) Using the duration approximation formula with a convexity adjustment. what percentage change in the price of Bond A would you expect if the yield decreases by 150 ?