1. Assume the following information about a Treasury zero-coupon yield curve today: Maturity (years) Zero rates (%) Maturity (years) Zero rates (%) 2.30 3.50 2.70 3.80 2.90 4.00 3.10 4.20 3.20 4.30 1 2 3 4 6 7 8 9 10 5 All rates above are with continuous compounding. a. Calculate the corresponding rates under semi-annual compounding. b. Calculate the price of a 4-year Treasury bond with face value $1,000 that pays coupon annually at the coupon rate of 4%. c. If the government wants to issue a 5-year bond that pays coupon annually and priced at par (face value $1,000), what should be the amount of each coupon payment?

1. Assume the following information about a Treasury zero-coupon yield curve today: Maturity (years) Zero rates (%) Maturity (years) Zero rates (%) 2.30 3.50 2.70 3.80 2.90 4.00 3.10 4.20 3.20 4.30 1 2 3 4 6 7 8 9 10 5 All rates above are with continuous compounding. a. Calculate the corresponding rates under semi-annual compounding. b. Calculate the price of a 4-year Treasury bond with face value $1,000 that pays coupon annually at the coupon rate of 4%. c. If the government wants to issue a 5-year bond that pays coupon annually and priced at par (face value $1,000), what should be the amount of each coupon payment?

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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b. Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate band. The current real risk-free rate is 5%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.03 (t-1) %. The liquidity premium (LP) for the corporate bond is estimated to be 0.2%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Rate 0.83% 1.03 1.35 1.73 Corporate Bond Yield Spread = DRP + LP U.S. Treasury AAA corporate 0.20% AA corporate 0.52 A corporate 0.90 What yield would you predict for each of these two investments? Round your answers to three decimal places, 12-year Treasury yield: 7-year Corporate yield: % %
The following data are gathered for:· The real risk-free rate is 1.25%· Inflation premium is constant at 2.50%· Default risk premium is 5%· Liquidity risk premium is 0.50% What is the quoted rate on a short-term government security?
Example: suppose the following rates on risk-free zeros: Maturity (years) Yield to Maturity (y) 1 2 3 4 2.5% 3.5% 5% 6.5% Forward Rate 4.51% 8.07% 11.1% Calculate the effective 2-year forward rate in 2-years: 2f2
The yield curve for default-free zero-coupon bonds is currently as follows: Maturity (years) YTM 1 9.8% 2 10.8 3 11.8 Required: a. What are the implied one-year forward rates? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Maturity (years) YTM Forward rate 1 9.8% 2 3 10.8% 11.8% % % b. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve (that is, the yields to maturity on one- and two-year zero-coupon bonds) be next year? O There will be a shift upwards in next year's curve. O There will be a shift downwards in next year's curve. O There will be no change in next year's curve. c. What will be the yield to maturity on two-year zeros? (Do not round intermediate calculations. Round your answers to 2 decimal places.) YTM % d. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current…
Q1. Price and Yield. Yield (%) Price at required yield ( coupon rate/ maturity) 6% / 5 6% / 20 3%/5 3% / 20 0% / 5 0% / 20 year year year year year year 3.00 4.00 5.50 5.90 5.99 6.00 6.01 6.10 7.50 8.00 Assume face value is $100. a. Plot the table. b. What is the shape of the price-yield relationship? c. Describe the general relationship you observe between changes in bond prices and changes in yield to maturity.
2. If the current inflation rate is 3.6% and you have an investment opportunity that pays 10.9%, then what is the real rate of interest on your investment? Please use both exact formula and approximate formula.
The real risk-free rate of interest is 4.5%. Inflation is expected to be 4% in the upcoming year and 6% for each of the next 3 years. Assume that the maturity risk premium (MRP) is zero. What is the yield on a 4-year Treasury security? Question 3Answer a. 6.00% b. 10.00% c. 4.50% d. 5.50%
Urgently need the solution
3. Interest rate swap. Consider a portfolio of floating-rate bonds that all mature in three years. What is the fixed coupon rate for a fairly priced fixed-for-floating interest rate swap given the following discount factors? Years 2. 0.,95 06'0 0.86
Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information: Real risk-free rate is currently estimated at 4.25% • The expected inflation premium is at 1.75% Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at: o 2.0% for 3-year maturity instruments o 3.0% for 4-year maturity instruments o 4.0% for 5-year maturity instruments Borrower Inc. have the following issued bonded indebtedness: Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum. Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum. Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum. What is the value of Bond A? Clue - correct answer should have a string of number "00" appearing in sequence in any unit until two decimal points.
Assume you have the following asset and liability in your Balance Sheet:Asset - Bond AModified Duration = 2.6 yearsValue= RM1.5 millionAAFARLiability - Bond BModified Duration = 3.1 yearsValue= RM1.0 milliona. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%?attachment. calculation step by step

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