A coupon-paying government bond B with a face (par) value of 876 euros makes annual coupon payments at the end of each year and has a coupon rate of 2.8 percent per year. The price today of this bond is 876 euros. The risk-free yield curve is flat. The first coupon of this bond will be paid in exactly 1 year from now and in the morning. You consider a forward contract that delivers one bond B in exactly 1 year from now in the afternoon, i.e. right after the first coupon has been paid out to bondholders. What must be the no- arbitrage delivery (forward) price in this forward contract initiated today?

A coupon-paying government bond B with a face (par) value of 876 euros makes annual coupon payments at the end of each year and has a coupon rate of 2.8 percent per year. The price today of this bond is 876 euros. The risk-free yield curve is flat. The first coupon of this bond will be paid in exactly 1 year from now and in the morning. You consider a forward contract that delivers one bond B in exactly 1 year from now in the afternoon, i.e. right after the first coupon has been paid out to bondholders. What must be the no- arbitrage delivery (forward) price in this forward contract initiated today?

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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A government bond has coupon yield 10.9%, face value of 4000 EUR, and maturity in 2026. The coupons are paid yearly. Today is 2022, and we just received a coupon. The government yield curve for time-to-maturity 4 years shows a yield of 5.0%. 1. What is the fair price of the bond today? 2. What is the duration of the bond?
You can enter into a forward contract for a bond with a maturity in one year months that pays a coupon payment of $25 every six months. The bond has a forward price of $930. The current zero coupon rate for 6 months is 4% annually and the zero coupon risk free rate for one year is 5% annually (assume continuous compounding). The current price of the bond is $943. Use the equilibrium forward price equation (F=Sert) adjusted for both coupon payments to see if an arbitrage opportunity exists. If arbitrage is possible, explain the arbitrage opportunity that exists and show how the profit can be earned – make sure to explain every step in detail in realizing the profit and establishing the arbitrage. If arbitrage is not possible, show how you know it is not possible. ANSWER IN TYPING OTHER WISE DOWNVOTE YOU
Suppose that we expect $1 million in 3 months and that we want to invest it for a period of 6 months. We also want to set today the rate at which we can invest this money. It is possible to recreate the same result as a forward rate agreement by taking a long position in a 3-month zero-coupon bond and a short position in a 9-month zero-coupon bond True Faux
Consider a zero coupon bond that promises to pay $100 each year for the next three years. Suppose we observe the set of zero coupon bond prices and its yields as below a) What is the price of this zero coupon bond? What is its yield to maturity? b) If the observe yield on two-year zero coupon bonds falls to 6% per year, but the other rates remain unchanged. What is your estimation of the value of the three-year annuity paying $100 per year? What is its yield to maturity?
Suppose you have an obligation to pay € 56 000 in 8 years time. To avoid interest risk you intend to hedge with two bonds. You can use one zero coupon bond that matures 10 years from now, and one bond that pays coupons once a year at the rate of 5% and matures in 3 years with a face value of 100. Assume a flat yield curve. (a) What amount do you have to invest in each of the two bonds during the first year to hedge your obligation if the yield is 5%? What is the payoff at maturity (face value) of your investment in the zero coupon bond? How many units of the coupon bond do you have to buy? (Assume that you can buy any fractional amount of the bonds.) (b) What is the value of your portfolio today if immediately after the investment the market rate falls to 4%? What will be the value in 8 years if interest rates will not change again?
A federal government bond with a 16-year maturity and an annual coupon rate of 10% (coupons are paid semi-annually) currently trade on the basis of a yield to maturity of 8%. You decide to buy this bond now. You intend to resell it in exactly 5 years, and you believe that it will then trade on the basis of a yield to maturity of 11%. What return (effective annual) do you hope to achieve on this investment if you anticipate reinvesting the coupons received at the rate of 8% nominal compounded semi-annually?
Consider a government bond that pays coupon semi-annually on 15 February and 15 August each year, where the annual coupon rate is 7%. The face value of the bond is $100 and the bond is redeemable at par on 15 August 2030. If the current date is 27 March 2021 and the bond yield is quoted as 7.5% per annum compounded semi-annually, calculate the market price (which is also known as the clean price) with the help of the RBA formula.
Suppose that a 30-year government bond has a maturity value of $1000 and a coupon rate of 4%, with coupons paid semiannually. Find the market price of the bond if the yield rate is 3% compounded semiannually. (Round your answer to the nearest cent.)
Suppose that you trade a forward contract today that matures after one year. The forward price is $105 and the simple interest rate is 7 percent per year. If after six months from today, the spot price is going to be $125 and the value of the forward contract is $20, the arbitrage profit that you can make today by trading one forward contract and other securities is?
You attempt to finance a 10-year guaranteed investment contract (GIC). The paymentmade by policyholder is $100 million. Suppose the promised annual interest rate of theGIC is 5%. The bond you want to use is a 15-year, 5% annual coupon rate bond (semiannually paid). Its face value is $100 million and you bought at par. Suppose the newinterest rate in the life of GIC stay constantly at 6%. Answer the following questions:(1). What is the promised payment of the GIC?(2). Calculate the total return of the investment.
Over the next three years, the expected path of 1-year interest rates 4, 1, and 1 percent. Today if you buy $1 of one-year bond and when it matures you use the money you receive to buy another one-year bond. then your expected rate of return for this $1 investment is ____% (round to the nearest integer). If the expectations theory of the term structure is true, then it implies that the current interest rat ein 2-year bond must be ____% (round to one decimal place x.x)
You're given two investment options: Bond X: A regular 2-year bond with a coupon rate of 4% per year, payable semi-annually. Its current price is $975.Bond Y: A 2-year real-return bond with a coupon rate of 3% per year, payable annually. Its current price is $980. What is the average annual inflation rate over the next 2 years that would make the nominal rates of return of the two choices the same? Use continuous compounding only

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