The price of bond when it was issued. Introduction: A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate. Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

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Answer 1

Question

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

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An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.

The one-year forward rates of interest, f+, are given by: . fo = 5.06%, f₁ = 6.38%, and f2 = 5.73%. Calculate, to 4 decimal places (in percentages), the three-year par yield.

Answer 2

Question

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

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Answer 3

Question

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

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Answer 4

Question

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

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Answer 5

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

Answer 6

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

Answer 7

Chapter 6, Problem 11P

a.

Summary Introduction

To determine: The price of bond when it was issued.

Introduction:

A bond is a debt instrument with which a shareholder credits cash to an entity, which can be a government or an organization that scrounges finance for a distinct timeframe at a predefined interest rate.

Coupon rate is expressed as an interest rate on a fixed income security like a bond. It is also called as the interest rate that the bondholders get from their investment. It depends on the yield of the day when the bond is issued.

Answer 8

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

Answer 9

b.

Summary Introduction

To determine: The price of bond before the first coupon payment.

Answer 10

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

Answer 11

c.

Summary Introduction

To determine: The price of bond after the first coupon payment.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 6.1 - What is the relationship between a bonds price and...Ch. 6.1 - The risk-free interest rate for a maturity of...Ch. 6.2 - If a bonds yield to maturity does not change, how...Ch. 6.2 - Prob. 2CC Ch. 6.2 - How does a bonds coupon rate affect its...Ch. 6.3 - How do you calculate the price of a coupon bond...Ch. 6.3 - How do you calculate the price of a coupon bond...Ch. 6.3 - Explain why two coupon bonds with the same...Ch. 6.4 - There are two reasons the yield of a defaultable...Ch. 6.4 - What is a bond rating?

Solution Summary: The author determines the price of bond when it was issued. The coupon rate is expressed as the interest rate that the bondholders get from their investment.

To determine: The price of bond before the first coupon payment.

To determine: The price of bond after the first coupon payment.

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Chapter 6 Solutions