Question

In: Finance

Today is 1 July 2020. Joan has a portfolio which consists of two different types of...

Today is 1 July 2020. Joan has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Joan purchased all instruments on 1 July 2013 to create this portfolio and this portfolio is composed of 26 units of instrument A and 47 units of instrument B.

  • Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030.
  • Instrument B is a Treasury bond with a coupon rate of j2 = 4.79% p.a. and face value of 100. This bond matures at par. The maturity date is 1 January 2023.

  • (b) Calculate the current price of instrument B per $100 face value. Round your answer to four decimal places. Assume the yield rate is j2 = 2.03% p.a. and Joan has just received the coupon payment.

Select one:

a. 123.7377

b. 107.9936

c. 109.0898

d. 106.6948

Solutions

Expert Solution

Correct answer is d. 106.6948

As Joan has just received the coupon payment it means coupon is paid semi annually, so we will divide the yield and coupon payment by 2 and multiply the time by 2


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