The following table represents the term structure of spot interest rates: Rate (% p.a., semi- annual compounding) Term (years) 0.50 1.00 1.50 2.00 2.50 3.00 3.30% 3.92% 4.35% 4.52% 1 Consider two bonds - Bond A and Bond B. Bond A has a maturity of 1.5 years and pays coupons semi-annually at the rate of 10% per year. Its yield to maturity is 3.9050% p.a., semi- annual compounding. Bond B has a maturity of 3 years and pays coupons semi-annually at the rate of 7% per year. Its yield to maturity is 4.4805% p.a., semi-annual compounding. What are the spot interest rates for the terms of 1 year and 2 years?

The following table represents the term structure of spot interest rates: Rate (% p.a., semi- annual compounding) Term (years) 0.50 1.00 1.50 2.00 2.50 3.00 3.30% 3.92% 4.35% 4.52% 1 Consider two bonds - Bond A and Bond B. Bond A has a maturity of 1.5 years and pays coupons semi-annually at the rate of 10% per year. Its yield to maturity is 3.9050% p.a., semi- annual compounding. Bond B has a maturity of 3 years and pays coupons semi-annually at the rate of 7% per year. Its yield to maturity is 4.4805% p.a., semi-annual compounding. What are the spot interest rates for the terms of 1 year and 2 years?

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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Assume that a company issues a new bond with coupon rate of 11 %, 5% yield and $100 par value bond. Coupon is paid annually. The bond has three years to maturity. (1) What is the Macaulay duration of this bond? (ii) How would you interpret the result obtained in part (e)(i) above?
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You are given the following information. All bonds are from the same issuer (same credit risk). Bond Coupon Rate Maturity Price ($) 6% 1036.17 5% 2 1041.49 C 6% 3 1074.21 All coupon payments are annual and face values are $1000. Answer the following and express rates as a %, to 2 decimal places a) Determine the 1-, 2- and 3-year spot rates from the given prices (Use the Bootstrapping method). 1- Year Spot rate is 2- Year Spot rate is 3- Year Spot rate is b) Compute the implied annual forward rate from year one to year two, i.e., f2 --> c) Compute the implied annual forward rate from year two to year three, i.e., f3 -->
What is the price of the bond given the information below. The bond makes semiannual interest payments. (Do not round intermediate calculations, round answer to two decimals, i.e. 32.16) Coupon Rate:8.5% YTM:9.5% Maturity (years):8 Par value: $2,000
Bond Durations: (A) Compute the duration and modified duration of a 7-year bond that makes annual payments with a coupon rate of 10% and a YTM of 9%. (B) If interest rates FALL by 100 basis points, what is the dollar and percentage change in price? (C) If interest rates RISE by 100 basis points, what is the dollar and percentage change in price?
For a one year bond of $2,300 at a simple interest rate of 10% per year, find the semiannual interest payment and the total interest earned over the life of the bond. The semiannual interest on the bond is s (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.) The total interest on the bond is $. (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.)
What is the price of the following semi-annual bond? face value: maturity: years coupon rate: discount rate: $1,000 10 8% 9%
Assume that a 5-year bond pays interest of $110 once a year (1 payment/year) and will mature for $1,000. Also assume that the yield to maturity on this bond is currently 12 percent. Given this information, determine the duration of this bond. Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 7.1186 years, enter "7.11".
Suppose Home Depot issues 30-year bonds on which it pays a 4.00% (nominal) interest rate. Further, suppose that both Home Depot and the purchasers of its bonds anticipate inflation will average 2.00% during the life of the loan. Now suppose the inflation rate after the loan is made (i.e. after the bond is purchased) is actually 1.00% per annum. It follows that the actual real rate of interest is and, ceteris paribus, are (is) better off than anticipated as a result of the difference between the anticipated and the actual rate of inflation. Select one: a. 2.00%, Bondholders b. 2.00%, Home Depot O c. 3.00%, Bondholders d. 3.00%, Home Depot
Consider the following maturity / yield to maturity for all treasuries. Interest compounds semiannually. Term to Maturity (years) Yield to Maturity or Coupon Rate 0.5 4.50% 1.0 5.00% 1.5 5.50% 2.0 6.00% 2.5 6.50% a) Which, if any, of these securities are zero coupon securities b) Why isn’t the 1.5 year spot rate equal to 5.5% c) Calculate the 1.5 year spot rate.
The following is a list of prices for zero-coupon bonds of various maturities. Maturity (years) 1 2 Price of Bond $ 930.00 902.97 3 4 829.62 772.99 Required: a. Calculate the yield to maturity for a bond with a maturity of (i) one year; (ii) two years; (iii) three years; (iv) four years. Assume annual coupon payments. b. Calculate the forward rate for (i) the second year; (ii) the third year; (iii) the fourth year. Assume annual coupon payments. Complete this question by entering your answers in the tabs below. Required A Required B Calculate the yield to maturity for a bond with a maturity of (i) one year; (ii) two years; (iii) three years; (iv) four years. Assume annual coupon payments. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Maturity (Years) Price of Bond YTM 1 $ 930.00 % 2 $ 902.97 % 3 $ 829.62 % 4 $ 772.99 %
The following table gives the prices of bonds Bond Principal ($) Time to maturity Annual coupon ($) Bond Price ($) 100 (years) 0.5 100 1 100 100 1.5 2 The bonds provide coupon are semiannual coupon bond a. Calculate 6-month, 12-month, 18-month and 24-month zero rates. 1567 0 98 100 100 101 b. What is the forward rate for the six-month period beginning in 12 months. c. Estimate the price of a two-year bond providing annual coupon of 7% annually.

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