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- 1. Find the current bond priceD3) Show that a variable rate bond is priced at par if the coupons are paid with reference to the rate curve with which the flows are discounted.Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. What was the price of this bond when it was issued? Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section. Maturity (years) 10 Face value 1,000…
- b. What is the bond’s current yield?Suppose that y is the yield on a perpetual government bond that pays interest at the rate of $1 per annum. Assume that y is expressed with simply com- pounding, that interest is paid annually on the bond, and that y follows the process dy = a(y0 −y)dt + oydWt, where a, y0, and o are positive constants and dWt is a Wiener process. (a) What is the process followed by the bond price? (b) What is the expected instantaneous return (including interest and capital gains) to the holder of the bond?Which of the following measures the interest rate risk of a bond in dollars and cents? O Price Value of a Basis Point O Convexity O Modified Duration Duration.
- K Bonds are priced in the market so that their A. stated rate B. yield OC. discount OD. par value is the same as the market rate of interest.Why do we say a coupon bond can be seen as a package of zero-coupon bonds? Please use a numerical example for illustration.TB TF Qu. 3-30 The yield to maturity on a bond is really... The yield to maturity on a bond is really its internal rate of return. True or False True False
- A bond’s expected return is sometimes estimated by its YTM and sometimes by its YTC. Underwhat conditions would the YTM provide a better estimate, and when would the YTC be better?Consider a bond with a face value of $1000. An increase and decrease in 1 bp results in the price changing to 995.12707 and 996.09333, respectively. What is its PVBP?A fixed rate bond with notional 1 pays annual coupons of c at times T1,T2,...,Tn whereTi+1 =Ti+1andnotional1attimeTn. a) Write down the bond price Bc^(FXD)(t) at time t ≤ T in terms of ZCBs.