Brothers Bank has a $1.7 million position in a five-year, zero-coupon bond with a face value of $2 million. The bond is trading at a yield to maturity of 4.5 per cent. The historical mean change in daily yields is 0.0 per cent, and the standard deviation is 10 basis points. Calculate the following (round to four decimal places): A. Modified Duration. B. What is the maximum adverse daily yield move given that we desire no more than a 1 per cent chance that yield changes will be greater than this maximum? C. Price volatility.

Brothers Bank has a $1.7 million position in a five-year, zero-coupon bond with a face value of $2 million. The bond is trading at a yield to maturity of 4.5 per cent. The historical mean change in daily yields is 0.0 per cent, and the standard deviation is 10 basis points. Calculate the following (round to four decimal places): A. Modified Duration. B. What is the maximum adverse daily yield move given that we desire no more than a 1 per cent chance that yield changes will be greater than this maximum? C. Price volatility.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
Follow Bank has a $1 million position in a five-year, zero-coupon bond with a face value of $1,402,552. The bond is trading at a yield to maturity of 7.00 percent. The historical mean change in daily yields is 0.0 percent, and the standard deviation is 12 basis points. What is the maximum adverse daily yield move given that we desire no more than a 5 percent chance that yield changes will be greater than this maximum?
Fifth Star Bank has $2 million position in a 7-year, zero-coupon bond with a face value of $1 427 648.The bond is trading at a yield to maturity of 8 per cent. The historical mean change in daily yields is 0.0 per cent, and the standard deviation is 10 basis points. Assume the bank desires no more than a 5 per cent chance that yield changes will be greater than this maximum? What is the daily earnings at risk for this bond? What would be the VAR for the bond for a 5-day period? What is meant by value at risk (VAR)? How is VAR related to DEAR in the RiskMetrics Model
Two years ago, Company XYZ issued $100 million worth of ten-year bonds with a face value of $1,000 and a coupon rate of 5%. Coupon payments are made semi-annually. Two years ago, the market yield-to-maturity was 3% p.a. Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a. a) Determine the market price of the bonds at issue based on an appropriate model. b) Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today. c) Compare the results in (a) and (b) above and interpret the sensitivity of bond prices to maturity and yield to maturity.
Sunburn Sunscreen has a zero coupon bond issue outstanding with a face value of $25,000 that matures in one year. The current market value of the firm’s assets is $27,200. The standard deviation of the return on the firm’s assets is 35 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $31,000 that matures in one year. The current market value of the firm’s assets is $34,400. The standard deviation of the return on the firm’s assets is 39 percent per year. Suppose Sunburn Sunscreen and Frostbite Thermalwear have decided to merge. Because the two companies have seasonal sales, the combined firm’s return on assets will have a standard deviation of 21 percent per year. a-1. What is the combined value of equity in the two existing companies? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,…
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $9,000 face value that matures in one year. The current market value of the firm's assets is $9,600. The standard deviation of the return on the firm's assets is 36 percent per year, and the annual risk-free rate is 7 percent per year, compounded continuously. Based on the Black Scholes model, what is the market value of firm’s equity and the market value of the firm's debt?
sunburn sunscreen has a zero coupon bond issue outstanding with a $21,000 face value that matures in one year. the current market value of the firm's assets is $22,800. The standard deviation of the return on the firm's assets is 26 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. based on the black-scholes model, what is the market value of the firm's equity and debt?
A firm has an outstanding perpetual bond with a par value of $1,000 that can be called in one year at a call price of $1,260. The bond has a coupon rate of 8%, paid quarterly, and has a yield to maturity of 8%. In one year the yield to maturity may change. There is a 23% chance that the yield to maturity will increase to 10%, a 30% chance that the yield to maturity decreases to 5.9%, and a 47% chance that the yield to maturity will not change. What is the current market price of the bond? Enter the bond price rounded to two decimal places (E.g., 1050.55).
Last year Carson Industries issued a 10-year, 13% semiannual coupon bondat its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065and it sells for $1,200.a. What are the bond’s nominal yield to maturity and its nominal yield to call? Would aninvestor be more likely to earn the YTM or the YTC?b. What is the current yield? Is this yield affected by whether the bond is likely to be called?(Hint: Refer to footnote 6 for the definition of the current yield and to Table 7.1.)c. What is the expected capital gains (or loss) yield for the coming year? Is this yielddependent on whether the bond is expected to be called? Explain your answer.
Laurel, Inc., and Hardy Corp. both have 10 percent coupon bonds outstanding, with semiannual interest payments, and both are currently priced at the par value of $1,000. The Laurel, Inc., bond has three years to maturity, whereas the Hardy Corp. bond has 18 years to maturity. a.If interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)b.If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of each bond? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Gilligan Co.'s bonds currently sell for $1,150. They have a 6.60% annual coupon rate and a 14-year maturity, a $1,000 par value, and are callable in 7 years at $1,066.00. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM? Group of answer choices 4.65% 5.08% 4.50% 4.84% 4.99%
The Pioneer Petroleum Corporation has a bond outstanding with an $60 annual interest payment, a market price of $880, and a maturity date in eight years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) a. Coupon rate 6.00 % b. Current yield 6.82 % c-1. Approximate yield to maturity %