FREE Trial

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 8% coupon if it

Question:

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 8% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as follows:

Derive the probability distribution of the 1-year HPR on a

For simplicity, assume the entire 8% coupon is paid at the end of the year rather than every 6months.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Transcribed Image Text:

Probability YTM State of the Economy Boom Normal growth Recessiorn .20 50 30 11.0% 8.0 7.0

This problem has been solved!


Do you need an answer to a question different from the above? Ask your question!

Step by Step Answer:

Answer rating: 50% (12 reviews)

Probability distribution of price and one year holding period return …View the full answer


answer-question
Answered By
tutor-profile-image
Saud Ur Rehman
Evaluating manufacturing processes by designing and conducting research programs; applying knowledge of product design, fabrication, assembly, tooling, and materials; conferring with equipment vendors; soliciting observations from operators. Developing manufacturing processes by studying product requirements; researching, designing, modifying, and testing manufacturing methods and equipment; conferring with equipment vendors. Keeping equipment operational by coordinating maintenance and repair services; following manufacturer's instructions and established procedures; requesting special service.
5.00+ 1+ Reviews 10+ Question Solved
Related Book For  answer-question
Investments

Investments

ISBN: 9780073530703

9th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

See More Books
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Question Posted: January 04, 2013 08:10:45
See More Questions

Related Video

The yield to maturity (YTM) is the percentage rate of return for a bond assuming that the investor holds the asset until its maturity date. This video will give a complete tutorial on how to calculate Yield to Maturity on Microsoft Excel

Students also viewed these Accounting questions

Q:
Bond P is a premium bond with an 8 percent coupon, a YTM of 6 percent, and 15 years to maturity. Bond D is a discount bond with an 8 percent coupon, a YTM of 10 percent, and also 15 years to...
A:
P P 0 40 PVIFA 3 30 1 000 PVIF 3 30 1 196 00 P 1 40 PVIFA 3 28 1 00......
Q:
A company's common stock is currently selling at $40 per share, its most recent dividend was $1.60, and the financial community expects that its dividend will grow at 10 percent per year in the...
A:
The dividend of 1 60 will grow by......
Q:
The Smythe Corporation's common stock is currently selling at $100 per share which represents a P/E ratio of 10. If the firm has 100 shares of common stock outstanding, a return on equity of 0.20,...
A:
Computation of the return on total assets Form......
Q:
In Exercises 3344, use the graph of y = f(x) to graph each function g. g(x) = f(x) - 2 -4,0) -5-4-3 4-33 y = f(x) y (0,0) 2- 3.4 45 -2) (4-2) X
A:
JA 4 2......
Q:
The members of the Young Entrepreneurs Club decide to sell T-shirts in their school colors for Spirit Week. In a marketing survey, the members ask students whether or not they would buy a T-shirt for...
A:
a n 2p 100 Write the equation of the line that passes through the poi......
Q:
The diagram shows an aeroplane of mass 3.4 x 10 5 kg accelerating uniformly from rest along a runway. After 26 s it reaches a speed of 65 m/s. a. Calculate i. The acceleration of the aeroplane ii....
A:
Part A i acceleration velocity time 65 26 2 5m s 2 ii Force acceleration......
Q:
If an automobile engine is 325-in. 3 , what is the volume in liters?
A:
Here are the steps on how to convert the volume of an automobile engine fro......
Q:
The marketing term churn refers to the rate at which customers abandon a product or service. Netflix has a very good churn rate of around 4 percent annuallythat is, the company loses about 4 in every...
A:
The warehouse employees are critical in maintaining a......
Q:
Note the following information concerning the direct costs of each of the following four departments: Supplied by: HR PM Human Resources $ 975,000 A) B) C) D) Human Resources Plant Maintenance...
A:
I see a table showing the direct costs of four departments along with the percentages of services they supply to each other You want to allocate costs by different methods Let s proceed with the cost......
Q:
East Coast Digital (ECD) produces high-quality audio and video equipment. One of the companys most popular products is a high-definition personal video recorder (PVR) for use with digital television...
A:
1 Spruce crop Daviss approach to calculating the opportunity cost with respect to the number of physical units involved is correct Since ECD is currently operating at less than full capacity 90 part o......
Q:
Suppose your expectations regarding the stock price are as follows: Use Equations to compute the mean and standard deviation of the HPR onstocks. r r)-(S) r8) r-ErP
A:
E r 0 35 44 5 0 30 14 0 0 35 16 5 14 2 0 35......
Q:
What is the standard deviation of a random variable q with the following probability distribution: Value of q Probability 0 ...........0.25 1 ...........0.25 2 ...........0.50
A:
Standard deviation of a rand......
Q:
Osteoporosis (bone loss) is a growing medical problem as the average age of the U.S. population increases. It can be diagnosed using the isotope 153 Gd. Using the Internet and other resources,...
A:
The method is called dual photon absorptiometry or DPA and is base......
Q:
Electrical engineers often use lithium niobate, LiNbO 3 , in designs for surface acoustic wave filters in devices such as cellular phones. What type(s) of bonding would you expect to be present in...
A:
Lithium niobate LiNbO3 is an inorganic compound with the chemical formula LiNbO3 It is a white crystalline solid that is insoluble in water Lithium ni......
Q:
An important category of MEMS devices is micro-actuators. These devices produce mechanical motion in response to some electrical signal. Search the web for information and write a short paragraph...
A:
One common type of micro actuator in MEMS Micro Electro Mechanical Systems devices is the electrosta......
Q:
Hydrogen combines with oxygen in fuel cells according to the thermochemical equation Suppose that you are working with a firm that is using hydrogen fuel cells to power satellites. The satellite...
A:
Calculate the moles of hydrogen required First I would convert the required energy to moles of hydro......
Q:
Some claim it would be more logical to use heats of atomization, the energy required to convert any molecule to its separated atoms, rather than heats of formation for doing calculations with Hesss...
A:
The choice between using heats of atomization and heats of formation in calculations involving Hess s law depends on the specific context and the info......
Q:
The curing of concrete liberates energy as heat. (a) What does this observation suggest happens in terms of chemical bonds as concrete cures? (b) What type of strategies might a civil engineer employ...
A:
a The observation that concrete curing liberates energy as heat suggests that chemical bonds are bei......
Q:
Solve each equation. Decide whether the equation is a conditional equation, an identity, or a contradiction. 13x (x + 7) = 12x - 13
A:
To solve the equation 13x x 7 12x 13 we ll begin by simplifying both s......
Q:
What is the back work ratio? What are typical back work ratio values for gas-turbine engines?
A:
Back work ratio is the ratio o......
Q:
Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The countrys gross domestic product (GDP) is $100 million. Production or...
A:
a VM1 GDP MS1 100 million 20......
Q:
Using the data in Problem 8, along with the monetarists view of the relationship between money supply and GDP, answer the following: a. If the M1 money supply increases by 10 percent and the M1...
A:
a 20 million x 1 10 x 5 0 22 million x 5......
Q:
The following information was gathered for the XYZ economy: velocity of money = 3.8 times; average price level = $85; and real output = 10,000 units. a. What is the nominal GDP for the XYZ economy?...
A:
a MS x VM RO x PL 10 000 units x 85 850 000......
Data Structures And Abstractions With Java 4th Global Edition - ISBN: 1292077182 - Free Book