ing investing in government bonds. The current price of a P100 bond with 10 years to maturity is P88.The bonds have a coupon rate of 6% and repay face value of P100 at the end of the 10 years.Calculate the yield to maturity.
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Question 1
2.BT is considering investing in government bonds. The current price of a P100 bond with 10 years to maturity is P88.The bonds have a coupon rate of 6% and repay face value of P100 at the end of the 10 years.Calculate the yield to maturity.
3.Explain four
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- Problem 2: The US government issues a Treasury bond that matures in 5 years, has a face value of $1,000 and a coupon yield of 10 percent, and pays semi-annual coupons. Suppose the Yield To Maturity (YTM) of similar bonds is 8%, What is the price of this Treasury bond? Suppose the YTM was 12% instead. Without making any calculation, state and prove whether the bond price would be higher or lower than the face value. After holding the bond for 6 months, you receive one coupon payment and then you immediately sell the bond for a price of $110 (per $100 of face value). Compute the holding period return (the YTM is 8%).Mf2. Suppose in Month 1 the yield on ten-year bonds issued by the government in a country was 1.8% (also the coupon rate). In the following Month 2, the yield was 2.3%. Predict the effect of these changes in yield on the price of the ten-year government bonds, assume a face value, 1000. You will need to calculate the duration, modified duration, convexity and clearly explain your results.Q1 (a) Explain FOUR (4) reasons that influence the changes which make debt securityyields vary. (b) If a government bond is expected to mature in two years and has a current priceof RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000and a promised coupon payment rate of 10%.(c) From part (b) above, illustrate how the bond price/value if the interest rate/yieldmoves up (increase).
- 4. Suppose that an investment institution offers you two kinds of bonds and you are willing to take one of them. The first bond, called 'Bond A1' pays you $5000 in 10 years, while the second bond, called 'Bond B1' pays you the same amount but in 20 years. а. If the interest rate is 5%, what is the value of each bond today? Which bond is worth more? Why? b. If the interest rate increases to 8%, what is the value of each bond? Which bond has a larger percentage change in value? After knowing the answer of A and B, you will С. be able to complete this sentence: "The value of bond [rises / falls] when the interest rate increases, and bonds with longer time to maturity are [more/less] sensitive to changes in the interest rate"D3) Finance The spread between the yield on a five-year bond issued by a company and the yield on a similar risk-free bond is 80 basis points. Assuming a recovery rate of 40%, estimate the average hazard rate per year over the five-year period. If the spread is 70 basis points for a three-year bond, what do your results indicate about the average hazard rate in years 4 and 5?26. Assume that you wish to purchase a 30-year bond that has a maturity value of P1,000 and a coupon interest rate of 9.5%, paid semiannually. If you require a 6.75% rate of return on this investment, what is the maximum price that you should be willing to pay for this bond? a. P1,352 b. P1,450 c. P1,111 d. P675
- Question2 (iii) Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing20% coupon rate. The market interest rate is 25%. The coupons are paid every sixmonths. You are to calculate the price of this bond.D6) Since funds must keep flowing for a country to remain economically viable, briefly explain the role of financial institutions and financial markets in ensuring a regular funds flow between demanders and suppliers of funds. (80-100 words) A 15-year annual coupon bond trades for $1,200 in the market. If the market interest rate is 4%, what is the bond’s coupon rate?5. Consider a bond portfolio consisting of €20 million in three-year maturity bonds, €10 million four-year maturity bonds and €15 million in five-year maturity bonds. The three-year bonds have a duration of 2.8 years, the four-year bonds have a duration of 3.6 years, and the five-year bonds have a duration of 4.5 years. If interest rates increase by 20 basis points, what will be the percentage change in the value of the nortfolio?
- 6. Pure expectations theory The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. A. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True B. The yield on a one-year Treasury security is 5.8400%, and the two-year Treasury security has a 8.7600% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 14.936% 13.4071% 11.7606% 9.9965% C. Recall that on a one-year Treasury security the yield is 5.8400% and 8.7600% on a two-year Treasury security. Suppose the one-year security does not have a…(b) If a government bond is expected to mature in two years and has a current priceof RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000and a promised coupon payment rate of 10%. Please give calculation step by step.(c) From part (b) above, illustrate how the bond price/value if the interest rate/yieldmoves up (increase).3. Suppose the face value of a discount bond (i.e. zero coupon bonds) is 8000 and the bond matures in 12 years. a. What will be the price of the bond if the market interest rate is 8%? b. What will be the price of the bond if the market interest rate is 10%? c. Explain the relationship between bond price and interest rate using your answers you got for question a and question b.