1/ Butchery Withoutbones issued the following bond: Amount: 125m Issue price: 99.731% Date of issue: 20...

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1/ Butchery Withoutbones issued the following bond: Amount: 125m Issue price: 99.731% Date of issue: 20 February 2014 Settlement date: 20 February 2014 Maturity: 7 years Annual coupon: 5.5%, i.e. in one instalment on 20 February of each year, with the first payment on 20 February 2015. Normal redemption date: The bonds will be redeemed in full on 20 February 2021 at par value. (a) Calculate the yield to maturity of the bond on issue, its modified duration and its duration. (b) On 21 February 2015, the yield to maturity on bonds comparable to the Butchery Withoutbones bond is 5%. Calculate the value, the modified duration and the dura- tion on this date of the Butchery Withoutbones bond. What are your comments compared to previous results. Exercise 1: Withoubones bond issue Amount Issue price Date of issue Settlement date Maturity Coupon 125 MEUR 99.731% 2/20/10 2/20/10 7 years 5.5% Cash flows Date 2/20/10 2/20/11 2/20/12 2/20/13 2/20/14 2/20/15 2/20/16 2/20/17 0 1 2 3 4 5 6 7 Cash flows -99.731% 5.500% 5.500% 5.500% 5.500% Discounted cash flows -99.731% 5.211% 4.937% 4.678% 4.432% 5.500% 4.199% 5.500% 3.978% 105.500% 72.299% Yield to maturity 5.547% PV 99.733% NPV 0% 0.00 0.05 0.09 0.13 0.17 0.20 0.23 4.79 Modified duration 5.68 Duration 0.00 0.05 0.10 0.14 0.18 0.21 0.24 5.06 6.0 6.0 As at 21 February 2011 Discounted cash flows Required yield to maturity 5.0% PV 102.5% Modified duration Duration 5.238% 4.989% 4.751% 4.525% 4.309% 78.726% 0 0.049886621 0.095022136 0.135745908 0.172375757 0.205209234 4.49861282 5.029 5.281 5.281 0 0.052380952 0.099773243 0.142533204 0.180994544 0.215469696 4.723543461 1/ Butchery Withoutbones issued the following bond: Amount: 125m Issue price: 99.731% Date of issue: 20 February 2014 Settlement date: 20 February 2014 Maturity: 7 years Annual coupon: 5.5%, i.e. in one instalment on 20 February of each year, with the first payment on 20 February 2015. Normal redemption date: The bonds will be redeemed in full on 20 February 2021 at par value. (a) Calculate the yield to maturity of the bond on issue, its modified duration and its duration. (b) On 21 February 2015, the yield to maturity on bonds comparable to the Butchery Withoutbones bond is 5%. Calculate the value, the modified duration and the dura- tion on this date of the Butchery Withoutbones bond. What are your comments compared to previous results. Exercise 1: Withoubones bond issue Amount Issue price Date of issue Settlement date Maturity Coupon 125 MEUR 99.731% 2/20/10 2/20/10 7 years 5.5% Cash flows Date 2/20/10 2/20/11 2/20/12 2/20/13 2/20/14 2/20/15 2/20/16 2/20/17 0 1 2 3 4 5 6 7 Cash flows -99.731% 5.500% 5.500% 5.500% 5.500% Discounted cash flows -99.731% 5.211% 4.937% 4.678% 4.432% 5.500% 4.199% 5.500% 3.978% 105.500% 72.299% Yield to maturity 5.547% PV 99.733% NPV 0% 0.00 0.05 0.09 0.13 0.17 0.20 0.23 4.79 Modified duration 5.68 Duration 0.00 0.05 0.10 0.14 0.18 0.21 0.24 5.06 6.0 6.0 As at 21 February 2011 Discounted cash flows Required yield to maturity 5.0% PV 102.5% Modified duration Duration 5.238% 4.989% 4.751% 4.525% 4.309% 78.726% 0 0.049886621 0.095022136 0.135745908 0.172375757 0.205209234 4.49861282 5.029 5.281 5.281 0 0.052380952 0.099773243 0.142533204 0.180994544 0.215469696 4.723543461