GM just issued a par bond with 7% annual coupon rate (paid semi-annually), which matures in 10 years. How much is the YTM? Plot the price of this bond wrt (all else unchanged) a) coupon rate (use range: 1% to 15%, steps 50 bps) b) time to maturity (use range 10 to 0, steps 1 year) If after a year Moody's downgrade GM and as a result YTM increases to 10%, what would be the price of the bond?

GM just issued a par bond with 7% annual coupon rate (paid semi-annually), which matures in 10 years. How much is the YTM? Plot the price of this bond wrt (all else unchanged) a) coupon rate (use range: 1% to 15%, steps 50 bps) b) time to maturity (use range 10 to 0, steps 1 year) If after a year Moody's downgrade GM and as a result YTM increases to 10%, what would be the price of the bond?

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 hold an annual coupon bond for 1 year, receiving the 0.14 coupon before selling. When bought it had 11 years to maturity, and the YTM was 0.08. Over the year, interest rates ROSE by 0.009 What is the total holding period return for this investment? 0.0276 0.0300 0.0291 0.0283 0.0267 [don't give chat gpt answer]
An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Maturity of zero coupon bond _____Years b. What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face Value_____ Millions $ Market Value______ Millions $
An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Maturity of zero coupon bond b. What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face value Market value years million million
Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 18 years to maturity, make semiannual payments, and have a face value of $1000 and a YTM of 6 percent. a. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? (Hint: % price change = 100% * (new price - old price)/old price) b. What does this problem tell you about the interest rate risk of lower coupon bonds? -
ces Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 4.0% if it is par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells bl enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate your answers to 2 decimal places.) Economy Boom Normal Growth Recession Probability 0.20 0.60 0.20 YTM 11.0 % 9.0 % 7.0% Price Capital Gain Coupon Interest HPR % % %
Consider a bond selling at par with modified duration of 10.6 years and convexity of 210. A 2% decrease in yield would cause the price to increase by 21.2%, according to the duration rule. What would be the percentage price change according to the duration-with-convexity rule? O [A] 21.2% O [B] 25.4% O [C] 17.0% O [D] 10.6%
You invest in a 2 year AAA rated government bond. The bond has a face value of $3000 and a coupon rate of 5% (paid annually). The AAA yield curve is flat at 3% (this implies a discount rate of 3% for all cash flows). Assume all shifts in the yield curve are parallel and that the distribution of 1 day changes in the rates are AR_AAA N(O, 0.0004) (Note: this means that they have mean zero and a standard deviation of 2%). Use the duration approximation to get the 10 day, 99% VaR for this bond. You should provide the bond price, duration and distribution of bond price changes as a minimum amount of working. Use 4-digit decimal places throughout your calculation.
From Federal Reserve Economic Data (FRED), we have obtained spot zero rates as follows: Spot zero Year rate 0.5 2% 1 3% 1.5 2 4% 2.5 ? 3 5% We want to calculate the price of a 3-year bond which pays 10% coupon (semi-annual). The face value of the bond is $1,000. However, the problem is that we do not know 1.5-year and 2.5-year spot zero rates. If we use linear interpolation method, what are the 1.5-year and 2.5-year spot zero rates? The 1.5-year spot rate is 3.50% and 2.5-year spot rate is 4.50% The 1.5-year spot rate is 1.75% and 2.5-year spot rate is 2.25% The 1.5-year spot rate is 1.70% and 2.5-year spot rate is 2.20% The 1.5-year spot rate is 3.40% and 2.5-year spot rate is 4.40%
The real risk-free rate, r*, is 2%. Inflation is expected to average 3.45% a year for the next 4 years, after which time inflation is expected to average 3.9% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%.a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?b. What must be the face value and market value of that zero-coupon bond?
Bond J has a coupon rate of 3 percent and Bond K has a coupon rate of 9 percent. Both bonds have 13 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? Percentage change in price of Bond J=? Percentage change in price of Bond K=? What if rates suddenly fall by 2 percent instead? Percentage change in price of Bond J=? Percentage change in price of Bond K=?
Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Bond B According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values of next year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) с D YTM(%) 5.1% Years to Maturity 1 2 3 6.1 6.6 7.1 YTM (%) % % %

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