Finance Use the data in the following table to calculate a. The effective duration when rates increase from 4% to 4.2% b. The effective duration when rates decrease from 4% to 3.5% 4% Coupon 10-year T-note Yield to Maturity Price 4.50% 97.78 4.20% 99.11 4.00% 100.00 3.80% 100.90 3.50% 102.28
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- Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.Ma4. Please give only typed answer. The function s(t) = 0.15 − 0.03 e− t/4 provides the term structure of effective annual rates of zero coupon bonds of maturity t, with t in years. Find the following: (a) The effective annual rate of a 3 year zero coupon bond. (b) The 2-year forward effective annual rate for a one year period. (c) The forward effective annual rate for a one year period, 3 years forward. (d) The 3-year forward effective annual rate for a 3 month period. (e) The forward effective annual rate for a one day period, 3 years forward (the “overnight” rate). (Use 1/365 for a one-day period.) Answer as a percentage, correct to 2 decimals.A two-year maturity floater. Assume annual coupon payment and $1,000 par. Its discount rate is Libor + 2%. The discount rate for fixed cash flows is 2% a. What is the price of this floater if the coupon is Libor + 2%? b. What is the price of this floater if the coupon is Libor + 1%?
- 4 - Based on economistsAc€?c forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = .90% E(2r1) = 2.05% L2 = 0.09% E(3r1) = 2.15% L3 = 0.12% E(4r1) = 2.45% L4 = 0.14% Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year Current (Long-term) Rates 1 % 2 % 3 % 4 % 6 - On March 11, 20XX, the existing or current (spot) 1-, 2-, 3-, and 4-year zero coupon Treasury security rates were as follows: 1R1 = 0.90%, 1R2 = 1.50%, 1R3 = 1.90%, 1R4 = 2.05% Using the unbiased…Suppose that the coupon rate for a TIPS is 5%. Suppose further that an investor purchases $10,000 of par value (initial principal) of this issue today. Also, there is deflation for the entire period of investment (you can assume 2% average deflation on annual basis). What is the principal that will be paid by the Department of the Treasury at the maturity date?1) Explain the concept of interest rate risk in bond investment 2) show a numerical example of it by calculating % changes in price for 1 year and 3-year annual coupon bonds. Assume coupon interest rate = 12%, Yield to Maturity = 6%, Face value= 100. Use 2% increase in YTM (i.e., 6% → 8%).
- D4) Suppose that there is 30-year coupon bond with par value of $100 and Macaulay duration of 20.56. The coupon rate is unknown. Currently, the bond is traded at $90 and the yield is flat at 20% pa. Yield to maturity is an annualized simple interest rate compounded annually. If the bond yield increases by 50 basis points, what is the approximation of the percentage capital gain or loss? Please choose the correct range for the percentage capital gain/loss, i.e., if it is -3.5%, please select “A value between -3% and -4%” A value between -9% and -10% A value between -8% and -9% None of the other answers are correct. A value between -7% and -8% A value between -10% and -11%Currently, 3-year Treasury securities yield8.7%,7-year Treasury securities yield8.4%, and 10 -year Treasury securities yield8.2%. If the expectations theory is correct, what does the market expect will be the yield on 3-year Treasury securities seven years from today? 8.13%8.33%7.73%7.53%7.93%Use the following information to answer. Coupon Payments are annual unless otherwise indicated! Years Face Coupon Market Security Rating Maturity Value Rate Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 Corp A A 5 $ 1,000 8.10% $ 990.00 Corp B BB 10 $ 1,000 7.90% $ 859.88 Corp C AA 15 $ 1,000 7.00% $ 660.00 What is the default risk premium for a BB debt security (round to two places)
- Answer briefly the following questions:a) Write the formula of the Price-Earnings ratio and explain how a result of 11 should be interpreted.b) Write the equation for the PV of 200.000₺ to be received two years later when the market interest rate isforecast as 17%.c) Define the yield to maturity of a 4-year maturity bond whose face value will be repaid at the end of thematurity.d) Define the intrinsic value of a 2-year maturity bond whose face value will be repaid in equal installments.A6 Calculate the interest rate sensitivity (change in price with respect to the interest rate) of a 1 year and a 5 year bond paying coupons of 4% when the current interest rate is 2%.
