Required: a. What is the duration of its obligation to me? The current interest rate is 10% per year. b. If the plan uses 5-year and 20-year zero-coupon bonds to construct the immunized position, how much money ought to be placed in each bond? c. What will be the face value of the holdings in each zero?

Which of the following investments that pay will $18,500 in 8 years will have a higher price today? The security that earns an interest rate of 8.50%.   The security that earns an interest rate of 12.75%.

Suppose the interest rate on a 1-year government bond is 3.00%, on a 4-year government bond is 3.50% and that on a 6-year government bond is 4.90%. What is the market's forecast for 2-year rates 4 years from now, assuming the pure expectations theory is correct? Show your work.

1. Suppose the interest rate on a one-year bond today is 6% per year, the interest rate on a one-year bond one year from now is expected to be 4% per year, and the interest rate on a one-year bond two years from now is expected to be 3% per year. The term premium on a two-year bond is 0.5% per year and the term premium on a three-year bond is 1.0 % per year. In equilibrium, what is the interest rate today on a two-year bond? On a three-year bond? What is the shape of the yield curve?

How much will the coupon payments be of a 20-year $5,000 bond with a 4% coupon rate and semiannual payments?

Suppose our corporation can borrow in EUR at 0.06% for 1 year. The current exchange rate is USD1.10/EUR, and the EUR is expected to appreciate against the dollar to USD1.2/EUR. What is the interest rate cost of the bond in USD? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.

You are considering a 10-year, Rs. 1000 par value bond. Its coupon rate is 10% and interest is paidsemiannually. If you require an effective annual interest rate of 8%, how much should you be willingto pay for the bond? Is effective annual interest rate differing from coupon rate? Explain.

Assume that the bond from problem #1 reaches maturity in 5 years instead of 15 years, with the same coupon rate and par value. What would the relevant market prices be at 10%, 5%, and 14% required market rates of return?

D4) Suppose that there is 30-year coupon bond with par value of $100 and Macaulay duration of 20.56. The coupon rate is unknown. Currently, the bond is traded at $90 and the yield is flat at 20% pa. Yield to maturity is an annualized simple interest rate compounded annually. If the bond yield increases by 50 basis points, what is the approximation of the percentage capital gain or loss? Please choose the correct range for the percentage capital gain/loss, i.e., if it is -3.5%, please select “A value between -3% and -4%” A value between -9% and -10% A value between -8% and -9% None of the other answers are correct. A value between -7% and -8% A value between -10% and -11%

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