HomeworkLib
Question

4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount Calculate the price of this bond Calculate the duration of this bond Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what should happen to the price of this bond immediately Suppose now one year passes and the interest rates in the economy are still 5 percentage points higher. If the person that owns this bond sells it for fair value, what would be their one year rate of return? Show a calculation. b) c) d) e)
business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

nswer tHere, Coupon kati alCu c duwati en oy boud 24 3.bl2lo. 652l1 dy 16-6จ 526 & 3 la-36 , 11 29 23 , 61 , 12.04h % 2ぶ 102Aio1210.65 Ra tuun Cto2 1210.bio6Sus 256 2300o oo 3 30 900 520、83 361 WLLu Coupon --faCL value Coup en sate 2.0% , n.. 31 (c) oluta ton btnol be touwInputs Rate Convention: 1 EAR, 0 APR Annual Coupon Rate (CR) Yield to Maturity (Annualized) (y) Number of Pavments/ Year (NOP Number of Periods to Maturity Face Value (F 0 30.00% 20.00% 3 $1,000 Outputs Discount Rate Period (RATE) Coupon Payment (PMT) 20.0% $300 Calculate Bond Duration using the Cash Flows Period Time (Y ears Cash Flows Present Value of Cash Flow Weight Weight * Time Maculay Duration Modified Duration 0 3 3.0 3 3.0 0.0 2.0 Total $300.00$300.00 $300.00 $1,000.00 $1,900.00 $250.00 $208.33 $173.61 $578.70 $1,210.65 20.6501% 17.2084% 14.3403% 47.8011% 100.0% $2.41 0.207 0.344 0.430 1.434 2.41 2.01BOND DURATION Basics 3 Inputs 4 Rate Convention 1 EAR, 0 APR 5 Annual Coupon Rate (CR) 6 Yield to Maturity (Annualized) (y) 7 Number of Payments Year ( 8 Number of Periods to Maturity (T) 9 Face Value (FV) 10 11 Outputs 12 Discount Rate /Period (RATE 13 Coupon Payment (PMT) 1000 15 Calculate Bond Duration using the Cash Flows 16 Period 17 Time (Years 18 Cash Flows 19 Present Value of Cash Flow 20 Weight 21 Weight Time 22 Maculay Duration 23 Moditied Duration -B16/NOP -C16/NOP PMT =C18/((1 + RATE)C16) -C19/SGS19 C20 C17 -D16/NOP -E16/NOP PMT モ18/K1 + RATE)E16) モ19/SG$19 -F16/NOP 1000 :F18/((1+RATEYF16)|=SUM(C19:F19) -F19/SGS19 :F20F17 Total PMT =D18/((1+RATErD16) -D19/SG$19 D20 D17 -SUM C18 F18) G19/SG$19 SUM(C21 F21) 20E 1 7 -SUM C21:F21) -B22(1+RATEaculy duration 2-4 n) Coupon faC Value Coupon ati 1000 x 30 -800 Subati ingtrtau la noe

0 0
Add a comment
Know the answer?
Add Answer to:
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...

    4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount. b) Calculate the price of this bond. c) Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...

  • Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and...

    Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. 4) a Without any calculation, briefly explain whether this bond will be selling a premium or a discount. b) Calculate the price of this bond. c) Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...

  • Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and...

    Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount. b) Calculate the price of this bond. c) Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what should...

  • 4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...

    4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount b) Calculate the price of this bond. c Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...

  • 4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...

    4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount. b) Calculate the price of this bond. c) Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...

  • 1000 euro par value, 3% annual-coupon bond was issued 1.03.2015 and has 30 year maturity You...

    1000 euro par value, 3% annual-coupon bond was issued 1.03.2015 and has 30 year maturity You purchased the bond on 20.10.2018 Market interest rate for similar securities is 2,8% Calculate following: a. Clean price b. Acrrued interest c. Full price d. Macaulay duration e. Modified duration If interest rate in the market declines by 50 bps g. Calculate new price with duration

  • A 30-year maturity 6% coupon bond making annual coupon payments selling at a yield to maturity...

    A 30-year maturity 6% coupon bond making annual coupon payments selling at a yield to maturity of 8% has a duration of 11.79 years and a convexity of 231.2. a. Suppose the yield to maturity increases to 9%. What will be the actual percentage capital loss on the bond? What percentage capital loss would be predicted by the duration rule and the duration-with-convexity rule? b. Repeat part (a), but this time assume the yield to maturity decreases to 7%. c....

  • 1. What is the value of a 5% annual coupon, 10 vr bond. $1.000 par value,...

    1. What is the value of a 5% annual coupon, 10 vr bond. $1.000 par value, if interest rates in the economy are 5% 2. T/F the interest rate a bond pays changes when interest rates or the price of the bond changes 3. T/F A U.S. Treasury note or bond has no credit risk and no interest rate risk. 4. What should happen to the price of a B+ corporate bond if the economy enters a recession a. It...

  • Bond Coupon Rate Maturity Year Par Value 1 7.5% 2032 1000 2 8.25% 2029 1000 3...

    Bond Coupon Rate Maturity Year Par Value 1 7.5% 2032 1000 2 8.25% 2029 1000 3 6.0% 2023 1000 a.) Assuming that bonds pay annual coupon, estimate the market value of each bond at a discount rate of 7.4% b.) Assuming that bonds pay annual coupon, what will happen to the price of each bond if market rates suddenly decrease from 7.4% to 6.2%? Which of the three bonds will have the greatest percentage change in price? c.) Assuming that...

  • A bond face value is $1000, with a 6-year maturity. Its annual coupon rate is 7%...

    A bond face value is $1000, with a 6-year maturity. Its annual coupon rate is 7% and issuer makes semi-annual coupon payments. The annual yield of maturity for the bond is 6%. The bond was issued on 7/1/2017. An investor bought it on 8/1/2019. Calculate its dirty price, accrued interests, and clean price.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT