Daniele wants to calculate the price of an Italian government bond. It has a €1,000 par value with a 1% coupon rate ( with interest paid semi-annually) that matures in five years. If the bond is priced to provide a required return of 2.5%, what is the bond's current price?
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- 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?The company SunInc wants to launch a new product and therefore needs to raise new financing. SunInc issues a bond with a face value of EUR 1000 and a maturity of 5 years. The coupon rate is EUR 45 and the payment annually. What is the yield to maturity? Please also explain how you calculated it.A trader, Peter, buys a treasury note with a face value of 1000, which will mature in 180 days. Currently such T-notes are yielding 4.25% per annum. a) what amount will peter pay for the T-note? b) What is the annual rate of return (HPY) for peter? c) what is the current yield of maturity (YTM) for the security?
- Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%. a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be your real return? c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)Consider a bond paying a coupon rate of 10% per year semi-annually when the market interest rate is only 4% per half-year. The bond has three years until maturity. This initial payment is $1000. A: What is find the bond’s price today and 6 months time after the next coupon is paid? B: What is the total rate of return on the bond?You are considering a 10-year, Rs. 1000 par value bond. Its coupon rate is 10% and interest is paid semiannually. Ifyou require an effective annual interest rate of 8%, how much should you be willing to pay for the bond? Is effective annual interest rate differing from coupon rate? Explain.
- 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?Answer the following situation show your Complete Solution. Show the formulas. a. A bond with face value of Php 1,000 is selling at Php 950. The maturity of the bond is one year . How much is its gain ? b. A bond with Php5,000 face value pays 10 % coupon rate semi - annually . If the maturity of the bond is 2 years , how much is the coupon paid semi - annually ? Find the total coupon during the life of the bond . Answers ( I already provided the answers just please show the solutions with correct formulas): a. Php 50 is the amount of gain. b. Php 500 is the among of semi-annual coupon. Php 2 000 is the total coupon since there are 4 periods in two years.Suppose that you buy a two-year 8% bond at its face value.(a) What will be your total nominal return over the two years if inflation is 3% in the first year and 5% in the second? What will be your total real return? (b) Now suppose that the bond is a TIPS. What will be your total two-year real and nominal returns?
- You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%.a. What is the present value and duration of your obligation?b. What maturity zero-coupon bond would immunize your obligation? c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation?d. What if rates fall immediately to 7%?In October 2010, you purchased a French government bond for €100 (face value) which pays a 1% coupon (nominal interest rate) every year until 2020. Today, in October 2014, similar bonds are issued at a 2% interest rate. What is the value of your bond today?a) What is the current yield of a bond that sells for $800 and has a coupon rate of 4%. b) A bond sells for $900 and is expected to trade for $1,000 in one year’s time. If the return on the bond is 12%, what is its coupon rate? c) Consider a 30-year, fixed-rate mortgage for $50,000 at a nominal rate of 8%. If the borrower wants to pay off the remaining balance on the mortgage after making the 10th payment, what is the remaining balance on the mortgage?