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Homework 1 (FIN 424-Fall2023)
[Submit in Brightspace, by Wednesday, October 4, 2023 for Questions and by November 15, 2023 for Bloomberg BMC]
Chapter 4
4. Answer the below questions for bonds A and B.
Bond A
Bond B
Coupon
8%
9%
Yield to maturity
8%
8%
Maturity (years)
2
5
Par
$100.0
0
$100.00
Price
$100.0
0
$104.055
Modified Duration
1.815
3.994
Convexity
4.277
19.764
(a)
Calculate the actual price of the bonds for a 100-basis-point increase in interest rates.
(b)
Using duration, estimate the price of the bonds for a 100-basis-point increase in interest rates.
(c)
Using both duration and convexity measures, estimate the price of the bonds for a 100-basis-point
increase in interest rates.
(d)
Comment on the accuracy of your results in parts b and c, and state why one approximation is closer to
the actual price than the other.
(e)
Without working through calculations, indicate whether the duration of the two bonds would be higher
or lower if the yield to maturity is 10% rather than 8%.
6. State why you would agree or disagree with the following statement: When interest rates are low, there
will be little difference between the Macaulay duration and modified duration measures.
14. Answer the below questions.
(a)
Suppose that the spread duration for a fixed-rate bond is 2.5. What is the approximate change in the
bond’s price if the spread changes by 50 basis points?
(b)
What is the spread duration of a Treasury security?
17. Consider the following portfolio:
Bond
Market Value
Duration (years)
W
$13 million
2
X
$27 million
7
Y
$60 million
8
Z
$40 million
14
(a)
What is the portfolio’s duration?
(b)
If interest rates for all maturities change by 50 basis points, what is the approximate percentage change
in the value of the portfolio?
(c)
What is the contribution to portfolio duration for each bond?
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Chapter 6
1. Following are U.S. Treasury benchmarks available on December 31, 2007:
US/T 3.125 11/30/2009
3.133
US/T 3.375 11/30/2012
3.507
US/T 4.25 11/15/2017
4.096
US/T 4.75 02/15/2037
4.518
On the same day, the following trades were executed:
Issuer
Issue
Yield (%)
Time Warner Cable Inc.
TWC 6.55 05/01/2037
6.373
McCormick & Co. Inc.
MKC 5.75 12/15/2017
5.685
Goldman Sachs Group Inc.
GS
5.45 11/01/2012
4.773
Based on the above, complete the following table:
Issue
Yield
(%)
Treasury
Benchmark
Benchmark
Spread (bps)
Relative Yield
Spread
TWC 6.55 05/01/2037
6.373
MKC 5.75 12/15/2017
5.685
GS
5.45 11/01/2012
4.773
13. You observe the yields of the following Treasury securities (all yields are shown on a boLnd-equivalent
basis):
Year (Period)Yield to Maturity (%)Spot Rate (%)Year (Period)Yield to Maturity (%)Spot Rate (%)
0.5 (1)
5.25
5.25
5.5 (11)
7.75
7.97
1.0 (2)
5.50
5.50
6.0 (12)
8.00
8.27
1.5 (3)
5.75
5.76
6.5 (13)
8.25
8.59
2.0 (4)
6.00
7.0 (14)
8.50
8.92
2.5 (5)
6.25
7.5 (15)
8.75
9.25
3.0 (6)
6.50
8.0 (16)
9.00
9.61
3.5 (7)
6.75
8.5 (17)
9.25
9.97
4.0 (8)
7.00
9.0 (18)
9.50
10.36
4.5 (9)
7.25
9.5 (19)
9.75
10.77
5.0 (10)
7.50
10.00 (20)
10.00
11.20
All the securities maturing from 1.5 years on are selling at par. The 0.5 and 1.0-year securities are zero-
coupon instruments. Answer the below questions.
(a)
Calculate the missing spot rates.
(b)
What should the price of a 6% six-year Treasury security be?
(c)
What is the six-month forward rate starting in the sixth year?
Bloomberg
If you have already taken the Bloomberg BMC, just submit your certificate or proof by November
15, 2023.
If you haven’t done it, take the Bloomberg BMC, then submit the certificate by November 15,
2023. The class code is
2X5L78BJH9
. Instructions to use the Bloomberg terminal can be found in
the file “BMC FIN424 HW1 Fall2023” posted on Brightspace.
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Page 137
6. [HW] A $25,000, 10% bond redeemable at par on Dec 1, 2028, is purchased on September 25, 2017,
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a) What is the cash price of the bond?
b) What is the accrued interest?
c) What is the purchase price?
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1- Imagine the bond above displayed the following details: $10,000 Matures: January 31, 2030; Interest of $200 payable June 30 and December 31 of each year. Can you calculate the annual effective interest rate for this bond?
a)2%
b)4%
c)6%
d)One cannot tell.
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Question 5: A Treasury Bill quotation appeared in WSJ on January 28, 2022 (Prices are for January 27, 2022) Calculate the
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1/26/2023
0.735
0.725
+0.095
0.741
a. Days to maturity (Keep in mind one day adjustment)
b. Asked and Bid Price
c. Bond Equivalent Yield (BEY)
d. Effective Yield
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1. Calculate the price of a bond using the Excel PV function.
Bond Pricing - Excel
FILE
HOME
INSERT
PAGE LAYOUT
FORMULAS
DATA
REVIEW
VIEW
Sign In
fx
Calculate Now
Calculation a Calculate Sheet
Function Defined
Formula
Library Names Auditing
Options
Calculation
B14
fe
A
B
D
E
F
G
1 On January 1, Ruiz Company issued bonds as follows:
2 Face Value:
3 Number of Years:
4 Stated Interest Rate:
5 Interest payments per year
6 (Note: the bonds pay interest annually.)
$
500,000
30
7%
7
8 Required:
9 1) Given the different market interest rates below, calculate the following items.
10 Calculate the bond selling price USING THE EXCEL PV FUNCTION (fx). Note: Enter all
11 function arguments as cell references.
12
13 a) Market Interest Rate:
9%
14
Annual Interest Payment:
15
Bond Selling Price:
16
17 b) Market Interest Rate:
5.5%
18
Annual Interest Payment:
19
Bond Selling Price:
20
21 2. Use the Excel IF function to answer either "Premium" or "Discount" to the following items.
22
23 The bond in (a)…
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neat and clean answer needed
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A4)
Finance
On August 16, 2012, a bond had a market price of $8,240.66 and accrued interest of $157.95 when the market rate was 8%What is the bond's face value if it matures on May 15, 2033?
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It is now June 1, 2023. Consider the following corporate bonds.
Bond
Bank of
Naboo
Bond
Mongo Co.
Bond
Krypton
Limited
Bond
Coupon
Rate
8%
???
???
Maturity
Date
June 1,
2028
January 1,
2030
June 1,
2048
Semiannual
Coupon
Payment
Per $100 of Face
Value
???
$3.00
$0
Price
Per $100 of Face
Value
???
???
$22.810708
It is now June 1, 2023. Calculate the entries missing from the above table.
Yield to
Maturity
Annual Rate,
Compounded
Semi-annually
5.50%
5.00%
???
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Ghadna Al Maskari Section 1 / Midterm Exam 2 Spring 2021
Which of the following is right about bonds trading
Select one:
O a. Bond prices are quoted as a percentage of the face value
O b. No interest will be paid after bond trading
O c. Newspapers and the financial press publish bond prices and trading activity daily
O d. Bondholders can sell their bonds, at any time, at the current market price on national securities exchanges
Next page
直。
اكتب هنا ل لبحث
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Assume there are five default-free bonds with the following cash flows:
Bond
Price today Cash Flows
Year 1
$50
$200
A
$48
$1265
BCDE
Year 2
$94.5
$45.5
$912
$1200
$100
$50
$50
Assume that you are financially constrained and can use up to $1300 to invest initially. The
arbitrage profit you can make by trading those bonds is the closest to:
Year 3
A) $94
B) $33
C) Cannot be calculated on the basis of this information
D) $61
Year 4
$50
$50
$1050
O,
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2. Calculate the current price of the following bonds. Current date is 01 January 2020
a
b
C
d
e
f
Face value
$1,000
$6,000
$5,000
$10,000
$1,000
$2,000
Interest,
pa
4%
5%
4.50%
8%
6%
4%
Required
rate
Coupon
5% Annually
6% Nil
6% Semi annual
6.50% Quarterly
8% Semi annual
6% Monthly
Maturity
31-Dec-20
1-Jul-21
1-Jul-22
31-Dec-30
31-Dec-40
1-Jul-25
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A
B
C
D
E
The following tables contain coupon, pricing, and other information for a series of bonds with
different maturities.
Bond Characteristics
Settlement date
Bond A
3/15/2023
Maturity date
11/14/2027
Bond B
Bond C
Bond D
3/15/2023 3/15/2023 3/15/2023
11/14/2027 11/14/2047 11/14/2047
Annual coupon rate
4.00%
4.00%
7.50%
7.50%
Yield to maturity
5.00%
5.00%
5.00%
5.00%
Redemption value (% of face value)
100
100
100
100
Coupon payments per year
1
2
1
2
Required:
Note: Use cells A2 to E10 from the given information to complete this question.
Using the information above, please calculate the flat (or quoted) price as well as days since
last coupon, days in a coupon period, accrued interest, and finally the invoice price. All prices
are expressed as percent of par.
Flat price (% of par)
Days since last coupon
Days in coupon period
Accrued interest (% of par)
Invoice price (% of par)
Bond A
Bond B
Bond C
Bond D
F
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If the YTM on the following bonds are identical except, what is the price of bond B?
Bond A Bond B
Face value $1,000 $1,000
Semiannual coupon $45 $35
Years to maturity 20 20
Price $1,098.96 ?
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2
The following tables contain coupon, pricing, and other information for a series of bonds with
different maturities.
3
4
Bond Characteristics
5
Settlement date
6
Maturity date
7
Annual coupon rate
8
Yield to maturity
9
Redemption value (% of face value)
10 Coupon payments per year
11
12 Required:
Bond A
3/15/2023
Bond B
3/15/2023
Bond C
3/15/2023
Bond D
3/15/2023
11/14/2027
11/14/2027 11/14/2047 11/14/2047
4.00%
5.00%
100
4.00%
5.00%
100
7.50%
7.50%
5.00%
100
5.00%
100
2
13 Note: Use cells A2 to E10 from the given information to complete this question.
14
Using the information above, please calculate the flat (or quoted) price as well as days since
15 last coupon, days in a coupon period, accrued interest, and finally the invoice price. All prices
are expressed as percent of par.
16
17
18 Flat price (% of par)
19 Days since last coupon
20 Days in coupon period
21 Accrued interest (% of par)
22 Invoice price (% of par)
23
Bond A
Bond B
Bond C
Bond D
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