Today is 1 July, 2019. Chrissi has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Chrissi purchased all instruments on 1 July 2010 to create this portfolio, which is composed of 32 units of instrument A and 42 units of instrument B. • Instrument A is a zero-coupon bond with a face value of $100. This bond matures at par. Its maturity date is 1 January 2029. • Instrument B is a Treasury bond with a coupon rate of j2 = 3.42% p.a. and a face value of $100. This bond matures at par. Its maturity date is 1 January

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
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**Portfolio Analysis and Bond Pricing**

**Overview:**

As of 1 July, 2019, Chrissi holds a diversified portfolio consisting of two distinct types of financial instruments, referred to as Instrument A and Instrument B. This portfolio was established on 1 July 2010 and comprises:

- 32 units of Instrument A
- 42 units of Instrument B

**Instrument Details:**

- **Instrument A:** 
  - Type: Zero-coupon bond
  - Face Value: $100
  - Maturity: 1 January 2029
  - Matures at par value

- **Instrument B:**
  - Type: Treasury bond
  - Coupon Rate: \( j_2 = 3.42\% \) per annum
  - Face Value: $100
  - Maturity: 1 January 2022
  - Matures at par value

**Task:**

Determine the current price of Instrument A for a $100 face value, using an assumed yield rate of \( j_2 = 4.32\% \) per annum. Round your final answer to four decimal places.

**Options:**
- a. $45.3531
- b. $66.6290
- c. $44.3942
- d. $44.7730
Transcribed Image Text:**Portfolio Analysis and Bond Pricing** **Overview:** As of 1 July, 2019, Chrissi holds a diversified portfolio consisting of two distinct types of financial instruments, referred to as Instrument A and Instrument B. This portfolio was established on 1 July 2010 and comprises: - 32 units of Instrument A - 42 units of Instrument B **Instrument Details:** - **Instrument A:** - Type: Zero-coupon bond - Face Value: $100 - Maturity: 1 January 2029 - Matures at par value - **Instrument B:** - Type: Treasury bond - Coupon Rate: \( j_2 = 3.42\% \) per annum - Face Value: $100 - Maturity: 1 January 2022 - Matures at par value **Task:** Determine the current price of Instrument A for a $100 face value, using an assumed yield rate of \( j_2 = 4.32\% \) per annum. Round your final answer to four decimal places. **Options:** - a. $45.3531 - b. $66.6290 - c. $44.3942 - d. $44.7730
Expert Solution
Step 1: Define=Zero coupon bonds

In zero coupon bonds there are no coupon payments and bonds are sold at large discount and paid on maturity with face value.

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