Question
In: Finance
Assume that you are a financial analyst in the fixed income department of an investment bank....
Assume that you are a financial analyst in the fixed income department of an investment bank. You are given the following information: the 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are, respectively, 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum, with continuous compounding. Your task is to answer the following questions.
- Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually.
- Calculate the yield rate of this bond.
Solutions
Expert Solution
GIVEN IN THE QUESTION -
- FACE VALUE = 100
- MATURITY PERIOD = 30 MONTHS
- COUPON RATE = 4% p.a.
- INTEREST AMOUNT (SEMI-ANNUALLY) = 2 (which is calculated as = 100 * 4% * 6/12)
- CASHFLOWS AT THE END OF YEAR 1 TO YEAR 4 = INTEREST AMOUNT = 2
- CASHFLOWS AT THE END OF YEAR 5 = INTEREST AMOUNT + PRINCIPAL REPAYMENT = 2 + 100 = 102
CASH PRICE OF BOND = 98.173 which is calculated as follows -
YIELD RATE OF BOND = 4.074 % which is calculated as follows -
%
jeff jeffy answered 2 years agoRelated Solutions
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