B1 A bond portfolio manager has a $25 million market value bond portfolio with a 19-year duration. The manager believes interest rates may increase 50 basis points.Which of the following could be used to help limit his/her risk?1. Sell the bonds forward,II. Buy bond futures contracts.III. Buy call options on the bondsIV. Buy put options on the bonds.O and Ill onlyOI, III, and IV onlyI onlyIf onlyOI and IV onlyQuestion 29A best efforts offering is one wherethe issue can only be privately placed.O the bid-ask spread is exceptionally high, but the investment banker does their best to sell the issue anyway.the underwriter bears the risk an unsuccessful offeringO the investment banker acts as a principal for the issuer.O the investment banker acts only as a distribution agent.

The increase or decrease in the interest rate causes the bond price to decrease or increase…

A bond portfolio manager has a $25 million market value bond portfolio with a 19-year duration. The manager believes interest rates may increase 50 basis points. Which of the following could be used to help limit his/her risk? 1, Sell the bonds forward, II. Buy bond futures contracts. III. Buy call options on the bonds. IV. Buy put options on the bonds. Oil and Ill only OIL II and IV only Olonly Oll only OI and IV only

A bond portfolio manager has a $25 million market value bond portfolio with a 19-year duration. The manager believes interest rates may increase 50 basis points. Which of the following could be used to help limit his/her risk? 1, Sell the bonds forward, II. Buy bond futures contracts. III. Buy call options on the bonds. IV. Buy put options on the bonds. Oil and Ill only OIL II and IV only Olonly Oll only OI and IV only

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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9. Interest Rate Risk. Suppose that you are a fixed income portfolio manager at Bourbon Street Capital. You have the following bonds issued by Royal, Inc. and Chartres, LLC in your portfolio and you want to understand the risk profile of your portfolio. Given that both bonds pay semiannual coupons, answer the following questions. (Remember to convert your answer to units of full years.) Coupon Yield to maturity Maturity (years) Royal, Inc. Chartres, LLC. Bond A Bond B 9% 8% 5 $100.00 $104.055 8% 8% 2 Par $100.00 Price $100.00 (a) What is the DV01 (at current prices) for bonds A and B? (b) What are the Macaulay Durations (at current prices) for the two bonds? (c) What are the modified durations for the two bonds? (d) What is the convexity of the two bonds?
NBP Sarmaya Izafa Fund is attempting to balance one of the bond portfolios under its management. The fund has identified three bonds which have five-year maturities and which trade at a YTM of 9 percent. The bonds differ only in that the coupons are 7 percent, 9 percent, and 11 percent. a. What does the concept of duration mean in context of security valuation? b. On what factors duration of a bond depends and what relation duration has with those factors? c. Calculate the duration of the tree bonds as described in para above. d. Plot the relation between duration and coupon rate
Lantech investor is deciding between two bonds: Bond A pay $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Par value of the bonds is $1,000. A. What is the current yield on both bonds? B. Which bond should be chosen and why? C. A drawback of current yield is that is doesn't consider the total life of the bond. E.g. Yield to maturity on Bond A is 8.33 percent. What is the yield to maturity on Bond B? D. Is your answer changed from parts B and C based on which bond should be chosen?
A manager wishes to hedge a bond with a par value of $20 million by selling Treasury bond futures, Suppose that the standard deviation for the bond to be hedged and the hedging instrument are 0.09 and 0.10, respectively and the correlation between the two is 0.85. a. What is the hedge ratio? b. How many Treasury bond futures contracts should be sold to hedge the bond if Treasuries are trading at $100,000? Edit View Insert Format Tools Table 12pt v Paragraph v BIUA
Please kindly assist d & e. Thank you. Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has five (5) years to maturity. Please demonstrate your understanding of interest rates risk by answering the following questions :a. Discuss which bond will trade at a higher price in the marketb. Discuss what happens to the market price of each bond if the interest rates in the economy go up.c. Which bond would have a higher percentage price change if interest rates go up?d. Please substantiate your argument with numerical examples.e. As a bond investor, if you expect a slowdown in the economy over the next 12 months, what would be your investment strategy? Provide your explanations and definitions in detail and be precise.
a) Your portfolio contains 60% of Bond I and 40% of Bond II. Details of the two bonds are given below: I. 10-year zero coupon government bond, par value $1000, current price = $613.91 II. 10-year zero coupon corporate bond, par value $1000, default premium= 2% Find the price of Bond II. Find the convexity of Bond I
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Show Transcribed Text B) How could you construct a 1-year forward loan beginning in year 3? (Face Value) C) How could you construct a 1-year forward loan beginning in year 4? (Face Value) Required A Required B Complete this question by entering your answers in the tabs below. Face value Rate of synthetic loan → Show Transcribed Text Price $ 970.93 898.39 836.92 How could you construct a 1-year forward loan beginning in year 3? Note: Round your Rate of synthetic loan answer to 2 decimal places. Required A 776.20 685.42 Required B Face value Rate of synthetic loan Required C 7.85 % Required C How could you construct a 1-year forward loan beginning in year 4? Note: Round your Rate of synthetic loan answer to 2 decimal places. Ċ 13.29 %
Consider the following bonds: •Bond A: A 2-year zero-coupon bond with a face value of $100 and 6% YTM. •Bond B: A 2-year par-value bond with a face value of $100 and 6% coupon rate. *Bond C: A 2-year par-value bond with a face value of $100 and 7% coupon rate. Suppose the yield curve shifts upwards by one percent. Which bond among bonds A, B, and C will experience the largest percentage price change? Which will have the lowest percentage price change? O a. Bond A; Bond C O b. Bond A; Bond B O c. Bond B; Bond C O d. Bond C; Bond B
You are the portfolio manager of a large company that invests in many securities including corporate bonds. You have been assigned the task of bond portfolio management. You are provided with the following data in relation to bonds: Maturity period 15 years Coupon rate 12% Par value $1,000 Coupons on bonds are paid annually Yield to maturity of bonds 8% Required: i) Calculate the Macualay’s duration, modified duration and convexity ii) Calculate the change in bond price when yield to maturity changes by one percent using modified duration iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity is considered Please show me the details calculation.
What is the duration of a three-year, $1,000 Treasury bond with a 12 percent semiannual coupon selling at par? Selling with a yield to maturity of 6 percent? 8 percent? Plot the relationship. What can you conclude about the relationship between duration and yield to maturity? Select one: a. Both the maturity periods have equal duration. b. When the yield to maturity is increasing the years to maturity will decrease. c. There is no relationship d. None of the other three answers are correct
Consider a $1,000-par-value Bond with the following characteristics: a current market price of $761, 12 years until maturity, and an 8% coupon rate. We want to determine the discount rate that sets the present value of the bond’s expected future cash-flow stream to the bond’s current market price. You are required to determine the discount rate that equates the present value of the bond?
Suppose a bond with a 12% coupon rate and semiannual coupons, has a face value of $1,000, 10 years to maturity and is selling for $1,197.93. Calculate: A. Current yield, and B. YTM if the price of the bond in one year is $2,014.83 STEPS MAY INCLUDE USE OF FINANCIAL CALCULATOR (BA 2 PLUS)

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