A portfolio manager is assessing the interest rate risk of three bonds as she considers making an investment ofUSD50 million. All three bonds are issued on 1 June 2026 and mature on 1 June 2030, and they have thefollowing characteristics: Characteristic Bond One Bond Two Bond Three Coupon (semiannual) 7% 3% 5%Yield - to - maturity 3% 7% 5% Question Q. The portfolio manager is interested in comparing the interest raterisk of Bond Three to that of Bond Four, a floating - rate note that resets every six months. On 1 June 2026, bothbonds were priced to yield 5%. If the yield changes from 5% to 5.25% halfway through the first coupon period,which bond has the greater Macaulay duration? Bond Three Bond Four Neither: The Macaulay duration is thesame for both bonds. Please explain in detail how 0.5 for Bond 4 can be calculated easily

Part 2: Explanation:Step 1: Understand Macaulay duration:Macaulay duration is a measure of the…

Answered: A portfolio manager is assessing the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You must make a choice between the following three sets of non-callable bonds. Foreach set, select the bond that would be best for your portfolio, given your interest rate outlook and the consequent strategy set forth in Part a. In each case, briefly discuss why you selected the bond. Bond Maturity Coupon Yield to MaturitySet 1 A 20 years 10% 10% B 20 years 6% 8%Set 2 C 20 years 6% 10% D 15 years 8% 10%Set 3 E 17 years 12% 12% F 20 years 12% 8%
For an investor who plans to purchase a bond that matures in one year, the primary concern should be Select one: a. Yield to maturity b. Interest rate risk c. Coupon rate risk d. Exchange rate risk Clear my choice
Find the YTM of a Treasury bond which you are considering purchasing. The settlement date is Oct. 1, 2023. The bond matures on Dec. 15, 2026 and has a 4.25% coupon rate (the maturity date tells you when the coupon payments are made). The quoted price for the bond is 102:12.
Refer to Figure and look at the Treasury bond maturing in February 2036.a. How much would you have to pay to purchase one of these bonds? b. What is its coupon rate? c. What is the yield to maturity of the bond?
A bond that has a face value of $1,500 and coupon rate of 3.10% payable semi- annually was redeemable on July 1, 2035. Calculate the purchase price of the bond on February 10, 2029 when the yield was 3.60% compounded semi-annually. Please include a well-labelled timeline diagram. Full solutions should be shown on separate sheets of paper. Submit your solutions. a. What was the purchase price of the bond? Round to the nearest cent b. What was the amount of discount or premium on the bond? (click to select) v amount is Round to the nearest cent
1. You expect interest rates to decline over the next six months. a. Given your interest rate outlook, state what kinds of bonds you want in your portfolio in terms of duration and explain your reasoning for this choice. b. You must make a choice between the following three sets of noncallable bonds. For each set, select the bond that would be best for your portfolio, given your interest rate outlook and the consequent strategy set forth in part (a). In each case, briefly dis- cuss why you selected the bond. Yield to Maturity (%) Maturity (yrs) Coupon (%) Bond A Set 1: 15 10% 10% Bond B 15 Bond C Set 2: 15 6. 10 Bond D 8. 10 10 Bond E Set 3: 12 12 12 Bond F 15 12
Problem: You are given the following data for two bonds with semiannual payments (A and B) Bond Settlement Date B 2/15/2020 2/15/2020 Maturity Date Coupon rate 2/15/2040 2/15/2040 4% 8% Similar bonds with 20 year to maturity sell for 9% coupon rates in the market. a) Calculate the bond value for bond A and B b) Calculate the YTM for bond A and B Bond Valuation Settlement Date 2/15/2020 2/15/2020 Maturity Date Coupon rate Required return Redemption Value Frequency Basis Calculate the PV of the bond in U.S. S 2/15/2040 2/15/2040 8% 4% 4.50% 4.50% 100 100 2 a) Use the Price Function B) Use the Yield Function
After recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume semiannual payments): a. Using the PRICE function, calculate the intrinsic value of each bond. Is either bond currently undervalued? How much accrued interest would you have to pay for each bond? b. Using the YIELD function, calculate the yield to maturity of each bond using the current market prices. c. Calculate the duration and modified duration of each bond.d. Which bond would you rather own if you expect market rates to fall by 2% across the maturity spectrum? What if rates will rise by 2%? Why?
Refer to this chart and look at the Treasury bond maturing in March 2022. Required: How much would you have to pay to purchase one of these bonds? Note: Do not round intermediate calculations. Round your answer to 3 decimal places. What is its coupon rate? Note: Round your answer to 3 decimal places. What is the yield to maturity of the bond? Note: Do not round intermediate calculations. Round your answer to 3 decimal places.
An investor is considering purchasing a bond with a 5.25 percent coupon interest rate, a par value of $1,000, and a market price of $926.31. The bond will mature in nine years. Based on this information, answer the following questions: a. What is the bond's current yield? b. What is the bond's approximate yield to maturity? c. What is the bond's yield to maturity using a financial calculator? ... a. The bond's current yield is 5.67%. (Round to two decimal places.) b. The bond's approximate yield to maturity is 6.30 %. (Round to two decimal places.) c. Using a financial calculator, the bond's yield to maturity is %. (Round to two decimal places.)
For an investor who plans to purchase a bond that matures in one year, the primary concern should be Select one: a. Interest rate risk b. Coupon rate risk c. Exchange rate risk d. Yield to maturity
Find the duration of a bond with a settlement date of May 27, 2025, and maturity date November 15, 2036. The coupon rate of the bond is 6.0%, and the bond pays coupons semiannually. The bond is selling at a bond-equivalent yield to maturity of 8.0%. Use Spreadsheet 16.3. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. X Answer is complete but not entirely correct. Macaulay duration Modified duration 11.98 X 11.52 X

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