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1. A six-year Eurobond has a 6% coupon and 6% yield.
a)What is the modified duration if duration equals 5.20 years?
b)What is the dollar duration for this bond if its par value is $1,000?
c)What would the duration be if the annual coupon is 6% and the current yield is 10%?
d) What the duration of a Eurobond with that matures in five years, has an annual coupon of 6%, and a face value of $1,000?
2. What is the difference between book value accounting and market value accounting? What is duration and how is it useful when it comes to figuring out interest rate sensitivity? What are zero-coupon bonds and what do they allow securities firms and investors to do? What are the characteristics of consol bonds when it comes to duration and maturity?
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- Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate is5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 4%. Given: Coupon rate r= 5%, payable semi - annually Face Value = 100,000 Time to maturity = 10 years Number of periods = 2(10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 each, and P100,000 at t = 10. Present Value of 100,000: F P =- 100000 = 67,556.42 1+ 0.0410 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1+ jm 0.04 1= (1+=)" -1 - (1+ ) - 1 - 1 = m 2 | = 0.0404Consider 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?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? b. What will be your total real return?
- Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate is5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 4%. Given: Coupon rate r= 5%, payable semi - annually Face Value = 100.000 Time to maturity = 10 years Number of periods = 2|10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 each, and P100,000 at t- 10. Present Value of 100,000: F 100000 = 67,556.42 1+ jm -1+0.0410 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1 = (1+)"-1= (1+) - I = 0.0404 Direction: Answer the following just like the given example above. 1. Suppose that a bond has a face value of P220, 000 and its maturity date is 6 years from now. The coupon rate is 5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 8%. 2. Suppose that a bond has a face value of P50, 000 and its maturity date is 5 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 find a bond with 19 years until maturity that has a coupon rate of 8 percent and a yield to maturity of 7 percent. What is the Macaulay duration? The modified duration? Answers are Macaulay duration = 10.775 Years (Approx) Modified duration = 10.070 Years
- Suppose that the yield curve shows that the one-year bond yield is 8 percent, the two-year yield is 7 percent, and the three-year yield is 7 percent. Assume that the risk premium on the one-year bond is zero, the risk premium on the two-year bond is 1 percent, and the risk premium on the three-year bond is 2 percent. a. What are the expected one-year interest rates next year and the following year? The expected one-year interest rate next year = The expected one-year interest rate the following year b. If the risk premiums were all zero, as in the expectations hypothesis, what would the slope of the yield curve be? The slope of the yield curve would be (Click to select) % %D4) About rate of return For a consol that pays $100 annually, if the yield to maturity at the beginning of the year is 10%, and the yield to maturity at the end of the year is 5%, please calculate the return of the consol of this year. If a coupon bond that is going to mature in two years is selling at par. Suppose its coupon rate is 10%, the yield to maturity at the begging of the year is 10%, and the yield to maturity at the end of the year is 5%. Please calculate the return of the coupon bond of this year.What is the value of a bond that matures in 5 years, has an annual coupon payment of OMR 110, and a par value of OMR 2,000? Assume a required rate of return of 9%.
- Consider a bond that has a face value of $1,000. The bond has a maturity of 25 years and pays coupons of 5.5% per annum. If the bond's required rate of return is 8.0% per annum nominal, and coupons are received semi-annually, what is the current market price of the bond?Consider a bond with a duration of 8.8 years priced at $1,100. If market interest rates were to increase by 0.25%, what would be the predicted new bond price according to duration?What are the cash flows generated at the end of five years 1,000 bond if interest rates 5%? What is the reinvestment income at the end of five years 1,000 bond if interest rates 5%? Suppose that the yield curve implies R = 1% annually. Then the duration of the Consol bond would be Suppose the annual coupon is 8.5%, the face value of the three years bond is $1,000, and the current yield to maturity (R) is also 8.5%. Compute the duration of the bond?