Question
In: Accounting
Bond 2 Coupon rate 6.8% Annual coupon frequency 2 Par $1,000 Time to maturity (years) 5...
|
Bond 2 |
||
|
Coupon rate |
6.8% |
|
|
Annual coupon frequency |
2 |
|
|
Par |
$1,000 |
|
|
Time to maturity (years) |
5 |
|
c) the realized compound yield for Bond 2 if the current price is $1000 and the semi-annual coupons are reinvested at an annual rate of 2% until the bond matures.
d) the realized compound yield for Bond 2 if the current price is $1000 and the semi-annual coupons are reinvested at an annual rate of 2% until the bond is sold in 3 years for $1,050.
e) Suppose the yield to maturity for Bond 2 changes from 5% to 4.75%. Compute the bond’s price at each YTM. What is the percentage difference in price? Compute the percentage as the (price when YTM is 4.75% - price when YTM is 5%) / price when YTM is 5%.
Solutions
Expert Solution
c.
| Step -1 | ||||
| Period | Event | Cashflow | Maturity Value | Amount |
| 1 | Coupon | $ 34.00 | 1.01 | $ 34.34 |
| 2 | Coupon | $ 34.00 | 1.02 | $ 34.68 |
| 3 | Coupon | $ 34.00 | 1.03 | $ 35.03 |
| 4 | Coupon | $ 34.00 | 1.04 | $ 35.38 |
| 5 | Coupon | $ 34.00 | 1.05 | $ 35.73 |
| 6 | Coupon | $ 34.00 | 1.06 | $ 36.09 |
| 7 | Coupon | $ 34.00 | 1.07 | $ 36.45 |
| 8 | Coupon | $ 34.00 | 1.08 | $ 36.82 |
| 9 | Coupon | $ 34.00 | 1.09 | $ 37.19 |
| 10 | Coupon | $ 34.00 | 1.10 | $ 37.56 |
| 10 | Redemption | $ 1,000.00 | 1.00 | $1,000.00 |
| Total | $1,359.27 | |||
| Step-2 | ||||
| Year | Cashflow | |||
| 0 | $ -1,000.00 | |||
| 10 | $ 1,359.27 | |||
| Step-3 | ||||
| Calculation of Realized YTM | ||||
| FV = | PV(1+r)^n | |||
| 1359.27 | 1000(1+r)^10 | |||
| (1+r)^10 | 1359.27/1000 | |||
| (1+r)^10 | 1.3593 | |||
| (1+r) | 1.0312 | |||
| r = | 3.12% | Per period | ||
| r = | 6.24% | Per Annum |
Realised YTM = 6.24%
d.
| Step -1 | ||||
| Period | Event | Cashflow | Maturity Value | Amount |
| 1 | Coupon | $ 34.00 | 1.01 | $ 34.34 |
| 2 | Coupon | $ 34.00 | 1.02 | $ 34.68 |
| 3 | Coupon | $ 34.00 | 1.03 | $ 35.03 |
| 4 | Coupon | $ 34.00 | 1.04 | $ 35.38 |
| 5 | Coupon | $ 34.00 | 1.05 | $ 35.73 |
| 6 | Coupon | $ 34.00 | 1.06 | $ 36.09 |
| 6 | Redemption | $ 1,050.00 | 1.00 | $ 1,050.00 |
| Total | $1,261.26 | |||
| Step-2 | ||||
| Year | Cashflow | |||
| 0 | $ -1,000.00 | |||
| 10 | $ 1,261.26 | |||
| Step-3 | ||||
| Calculation of Realized YTM | ||||
| FV = | PV(1+r)^n | |||
| 1261.26 | 1000(1+r)^6 | |||
| (1+r)^6 | 1261.26/1000 | |||
| (1+r)^6 | 1.26126 | |||
| (1+r) | 1.03944 | |||
| r = | 3.94% | Per period | ||
| r = | 7.89% | Per Annum |
Realised YTM = 7.89%
e.
| Bond Price if YTM is 5% | Bond Price if YTM is 4.75% | |||||
| Period | Event | Cashflow | PVF @2.5%(Semiannually) | Amount | PVF @2.375% | Amount |
| 1 | Coupon | $ 34.00 | 0.9756 | $ 33.17 | 0.9768 | $ 33.21 |
| 2 | Coupon | $ 34.00 | 0.9518 | $ 32.36 | 0.9541 | $ 32.44 |
| 3 | Coupon | $ 34.00 | 0.9286 | $ 31.57 | 0.9320 | $ 31.69 |
| 4 | Coupon | $ 34.00 | 0.9060 | $ 30.80 | 0.9104 | $ 30.95 |
| 5 | Coupon | $ 34.00 | 0.8839 | $ 30.05 | 0.8893 | $ 30.23 |
| 6 |
 ekkarill92 answered 2 years agoRelated SolutionsBond 2 Coupon rate 6.8% Annual coupon frequency 2 Par $1,000 Time to maturity (years) 5...
Bond 2
Coupon rate
6.8%
Annual coupon frequency
2
Par
$1,000
Time to maturity (years)
5
a) Compute duration and modified duration for Bond
2 using a discount rate (YTM) of 5%.
b) If the bond initially has a YTM of 5%, what is the
estimated price, using modified
duration, if the YTM falls to 4.75%?
A bond with a $1,000 par, 4 years to maturity, a coupon rate of 5%, and...A bond with a $1,000 par, 4 years to maturity, a coupon rate of
5%, and annual payments has a yield to maturity of 4.3%. What will
be the percentage change in the bond price if the yield changes
instantaneously to 4.9%?
(Bonds) A bond with a $1,000 par, 4 years to maturity, a coupon rate of 5%,...(Bonds) A bond with a $1,000 par, 4 years to maturity, a coupon
rate of 5%, and annual payments has a yield to maturity of 4.2%.
What will be the percentage change in the bond price if the yield
changes instantaneously to 4.6%? (If your answer is, e.g., -1.123%,
enter it as -1.123. If the sign of the price change is incorrect,
no credit will be given.)
A bond has a $1,000 par value, 20 years to maturity, and a 5% annual coupon...A bond has a $1,000 par value, 20 years to maturity, and a 5%
annual coupon and sells for $860. What is its yield to maturity
(YTM)? Round your answer to two decimal places. % Assume that the
yield to maturity remains constant for the next 2 years. What will
the price be 2 years from today? Do not round intermediate
calculations. Round your answer to the nearest cent. $
A bond with a $1,000 par, 4 years to maturity, a coupon rate of 3%, and...
A bond with a $1,000 par, 4 years to maturity, a coupon rate of 3%,
and annual payments has a yield to maturity of 3.3%. What will be
the percentage change in the bond price if the yield changes
instantaneously to 4.7%?
A bond with a $1,000 par, 4 years to maturity, a coupon rate of 3%, and...
A bond with a $1,000 par, 4 years to maturity, a coupon rate of 3%,
and annual payments has a yield to maturity of 3.3%. What will be
the percentage change in the bond price if the yield changes
instantaneously to 4.7%?
A bond with a $1,000 par, 6 years to maturity, a coupon rate of 4%, and...A bond with a $1,000 par, 6 years to maturity, a coupon rate of
4%, and annual payments has a yield to maturity of 3.6%. What will
be the actual percentage change in the bond price if the yield
changes instantaneously to 4.3%? Round to the nearest 0.001%, drop
the % symbol (e.g., if your answer is, e.g., 1.1234%, enter it as
1.123.)
A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually....A $1,000 par-value bond with 5 years of maturity pays a 5%
coupon rate, paid annually. What is the value of the bond if your
required rate of return is 5%?
2. A $1,000 par-value bond with 5 years of
maturity pays a 5% coupon rate, paid semi-annually. What is the
value of the bond if your required rate of return is 5%?
3. A $1,000 par-value bond with 5
years of maturity pays a 5% coupon rate, paid semi-annually. What...
1. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid...1. A $1,000 par-value bond with 5 years of maturity pays a 5%
coupon rate, paid annually. What is the value of the bond if your
required rate of return is 5%?
2. A $1,000 par-value bond with 5 years of maturity pays a 5%
coupon rate, paid semi-annually. What is the value of the bond if
your required rate of return is 5%?
3. A $1,000 par-value bond with 5 years of maturity pays a 5%
coupon rate, paid...
3. A $1,000 par bond has a 5% semi-annual coupon and 12 years to maturity. Bonds...3. A $1,000 par bond has a 5% semi-annual coupon and 12 years to
maturity. Bonds of similar risk are currently yielding 6.5%. a.
What should be the current price of the bond? b. If the bond’s
price five years from now is $1,105, what would be the yield to
maturity for the bond at that time? c. What will the price of this
bond be 1 year prior to maturity if its yield to maturity is the
same as...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|