Scribd
Upload
34 views3 pages

HW 6

The document discusses bond pricing and calculations of yield to maturity, current yield, holding period return, and duration. It provides examples of calculating YTM using a financial calculator and the duration formula. It also includes a calculation of accrued interest and examples of how changes in interest rates affect bond prices through duration.

Uploaded by

TaySyYin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
34 views3 pages

HW 6

The document discusses bond pricing and calculations of yield to maturity, current yield, holding period return, and duration. It provides examples of calculating YTM using a financial calculator and the duration formula. It also includes a calculation of accrued interest and examples of how changes in interest rates affect bond prices through duration.

Uploaded by

TaySyYin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Hw6

10.9 Current yield = Annual Coupon = $ 1,000 4.8 % = 4.95%


Bond Price $970
10.12The current yield and the annual coupon rate of 6% imply that the bond price
was at par a year ago.
Using a financial calculator, FV = 1,000, n =7, PMT = 60, and i =7 gives us a
selling price of $946.11 this year.

Holding period return = － $ 1,0 00 + $946.11 + $ 60


$ 1,000

= 0.0061 = 0.61%
10.17
a. Use the following inputs: n = 40, FV = 1,000, PV = –950, PMT = 40. We
will find that the yield to maturity on a semi-annual basis is 4.26%.
This implies a bond equivalent yield to maturity of: 4.26%  2 = 8.52%

2
Effective annual yield to maturity = (1.0426) – 1 = 0.0870 = 8.70%

b. Since the bond is selling at par, the yield to maturity on a semi-annual


basis is the same as the semi-annual coupon, 4%. The bond
equivalent yield to maturity is 8%.
2
Effective annual yield to maturity = (1.04) – 1 = 0.0816 = 8.16%
c. Keeping other inputs unchanged but setting PV = –1,050, we find a
bond equivalent yield to maturity of 7.52%, or 3.76% on a semi-annual
basis.

2
Effective annual yield to maturity = (1.0376) – 1 = 0.0766 = 7.66%

10.22 The reported bond price is $1,001.25

15 days have passed since the last semiannual coupon was paid, so there is an
accrued interest, which can be calculated as:

Accrued Interest = Annual Coupon Payment 


2
Day s since Last Coupon Payment
Days Separating Coupon Payment

= $35  (15/182) = $2.8846


The invoice price is the reported price plus accrued interest:

1,001.25 + 2.8846 = $1,004.13


10.28 The bond is selling at par value. Its yield to maturity equals the coupon rate,
10%. If the first-year coupon is reinvested at an interest rate of r percent, then
total proceeds at the end of the second year will be: [100  (1 + r) + 1100].
Therefore, realized compound yield to maturity will be a function of r as given in
the following table:

r Total proceeds Realized YTM =√ Proceeds/1,000 = 1


8% $1,208 √ 1,208/1,000 – 1 = 0.0991 = 9.91%
10% $1,210 √ 1,210 /1,000 – 1 = 0.1000 = 10.00%
12% $1,212 √ 1,210 /1,000 – 1 = 0.1009 = 10.09%
11.8 When YTM = 6%, the duration is 2.8334.
(1) (2) (3) (4) (5)
Time until Payment Column (1)
Payment Payment Discounted at Weight ×
(Years) 6% Column (4)
1 60 56.60 0.0566 0.0566
2 60 53.40 0.0534 0.1068
3 1060 890.00 0.8900 2.6700
Column Sum: 1000.00 1.0000 2.8334
When YTM = 10%, the duration is 2.8238

(1) (2) (3) (4) (5)


Time until Payment Column (1)
Payment Payment Discounted at Weight ×
(Years) 10% Column (4)
1 60 54.55 0.0606 0.0606
2 60 49.59 0.0551 0.1101
3 1060 796.39 0.8844 2.6531
Column Sum: 900.53 1.0000 2.8238

When the yield to maturity increases, the duration decreases.

11.9 Using Equation 11.2, the percentage change in the bond price is:
ΔP Δy 0. 0050
=−7.194× =−0. 0327
P = – Duration  1+ y 1. 10 or a 3.27%
decline
CFA 11.1
Answer:

C: Highest maturity, zero coupon


D: Highest maturity, next-lowest coupon
A: Highest maurity, same coupon as remaining bonds (Bond B and E)
B: Lower yield to maturity than bond E
E: Highest coupon, shortest maturity, highest yield of all bonds

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy