13 Suppose that Argentina’s 10-year bonds are yielding more than 100 percent annually. Does this high yield make them suitable for Canadian investors looking to raise the return on their portfolios? Explain
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13
Suppose that Argentina’s 10-year bonds are yielding more than 100 percent annually. Does this high yield make them suitable for Canadian investors looking to raise the return on their portfolios? Explain
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- 2. Engro Foods Pakistan wants to generate Rs. 1,500,000,000/- through issuance of bonds in Pakistan stock exchange at a cost of capital of 14.5% annually. The bonds will mature in 15 years. Suppose the prevailing average market rate is 12.5%. and the bond’s par value is Rs. 10,000/-. At what price the bond will be issued? Justify your finding with appropriate rationale.1. Suppose you are the proud owner of a $100,000 face-value Zimbabwe government bond having five years remaining to maturity with a fixed coupon interest rate of 5%. (a) Assume the bond pays semi-annual interest and that it is currently priced with a 40% yield-to-maturity. What is its current selling price? (b) The Zimbabwe government has proposed the following: in exchange for the bond you will receive an upfront cash payment equal to 15% of the original bond’s face value along with a new five-year bond paying a 2.5% coupon interest rate (paid semiannually) but with the face value reduced by 50 percent. Suppose markets indicate that these new bonds will be priced with a 20% yield-to-maturity. What would be the change in the present value of your investment if you participate in the exchange?a) At 21 February 2018, the US Government could borrow at an annual 10-year yield of 2.89%. At that yield, how much were financial markets paying for the right to receive $100 from the US Government 10 years later? (b) Suppose a 5-year zero-coupon bond (??? = $100) issued by the US government is currently trading at $90. What is the annual yield an investor would receive for buying such a bond and holding it to maturity? (c) Suppose the US Federal Reserve (the US Central Bank) wants to lower longer-maturity yields. Briefly explain the process (known as Quantitative Easing) it could use to achieve this.
- A federal government bond with a 16-year maturity and an annual coupon rate of 10% (coupons are paid semi-annually) currently trade on the basis of a yield to maturity of 8%. You decide to buy this bond now. You intend to resell it in exactly 5 years, and you believe that it will then trade on the basis of a yield to maturity of 11%. What return (effective annual) do you hope to achieve on this investment if you anticipate reinvesting the coupons received at the rate of 8% nominal compounded semi-annually?The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of $1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually.• What is the current price of the corporate bond?• Calculate the price of the bond if its yield increased by 1.00%.• Calculate the price of the bond if its yield decreased by 1.00%.• Please discuss the risk associated with this change in interest ratesThe yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of$1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually. • What is the current price of the corporate bond? • Calculate the price of the bond if its yield increased by 1.00%.• Calculate the price of the bond if its yield decreased by 1.00%. Please explain the process and show the calculations/formulas.
- An Omani Government zero-coupon bond with a par value of $5,000 matures in 10 years. At what price would this bond provide a yield to maturity that matches the current market rate of 5 percent?10) What is the current price of a $1,000 par value bond maturing in 9 years with a coupon rate of 8 percent, paid annually, that has a YTM of 9 percent? 11) Zhen Yi Computers has an outstanding issue of bond with a par value of $1,000, paying 12 percent coupon rate semi-annually. The bond was issued 25 years ago and has 5 years to maturity. What is the value of the bond assuming 14 percent rate of interest? 12) China Imports currently has 2,000 shares of common stock outstanding. The firm has assets of $200,000 and total liabilities including preferred stock of $75,000. Calculate the book value per share of China Imports common stock.The bank invests £15 million in a coupon bond issues by UK Treasury f) The coupon bond of point £15m pays a coupon of 4% per year, paid semi-annually. It has 2 years to maturity. If the current Yield-to-Maturity is 3.5% semi-annually, what is the price of the bond? g) A year later, the Bank of England is worried by rising inflation and announces its intention to raise interest rates. This announcement immediately sends the Yield-to-Maturity of bond in point (f) surging 300 basis points. Recalculate the price of the bond. h) What is the Holding Period Return recorded on the bond position over the past year? i) What is the Profit-and-Loss recorded on the bond position in Pound Sterling (£)? j) Record the result of point(g) in the T-accounts. k) If your result is a loss, please discuss if the bank has enough equity capital to support that loss. l) Please discuss the Basel Capital accords. Focus particularly on capital requirements and their calculation.
- Problem 2: The US government issues a Treasury bond that matures in 5 years, has a face value of $1,000 and a coupon yield of 10 percent, and pays semi-annual coupons. Suppose the Yield To Maturity (YTM) of similar bonds is 8%, What is the price of this Treasury bond? Suppose the YTM was 12% instead. Without making any calculation, state and prove whether the bond price would be higher or lower than the face value. After holding the bond for 6 months, you receive one coupon payment and then you immediately sell the bond for a price of $110 (per $100 of face value). Compute the holding period return (the YTM is 8%).An Australian commercial bank is looking to issue $1 billion of bonds into the wholesale funding markets to fund its ever-increasing demand for credit growth which is fuelling yet another house price boom. The bonds will be structured with a fixed-interest coupon priced on current government bond yields and equal to current interest rates of 3.00 per cent per annum, coupons paid half-yearly and a tenor of seven years. The bonds are denominated and priced into $1,000 allotments. a. What amount would the bank have raised once the bond is priced and launched into the capital markets? b. After one year, yields on identical types of securities are now 4.00 per cent per annum. The existing bond now has exactly six years to maturity. What is the value, or price, of the existing bond in the secondary market?(b) If a government bond is expected to mature in two years and has a current priceof RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000and a promised coupon payment rate of 10%. Please give calculation step by step.(c) From part (b) above, illustrate how the bond price/value if the interest rate/yieldmoves up (increase).
