Question: 1. ) Consider a 4 5/8 bond maturing 8/15/95, trading at 100:21 for settlement 2/15/94. Assume you purchase the bond on 2/15/94, and you sell

1. ) Consider a 4 5/8 bond maturing 8/15/95, trading at 100:21 for settlement 2/15/94. Assume you purchase the bond on 2/15/94, and you sell it on 2/15/95. Let y denote the initial yield to maturity. Let denote the reinvestment rate of the coupon payments. Let denote the yield to maturity on the bond at the time sale. All three rates are semi-annual. If y = = = 2.0846%, what is the (semi-annual) rate of return (RET) on your holding of this bond?

2. You are holding a 2-year 10% (annualized) coupon bond with face value $1,000 now. The interest rate now is 5% (semi-annual). What is the Macaulay Duration now? What is the Modified Duration now? When the interest rate (semi-annual) increases to 5.5% tomorrow, what is the actual price change in this bond? And what is the bond price change using modified duration approximation? Which one is larger in absolute value?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Consider a 4 5/8 bond maturing 8/15/95, trading at 100:21 for settlement 2/15/94. Assume you purchase the bond on 2/15/94, and you sell it on 2/15/95. Let y denote the initial yield to maturity. Let...

7, (10 points) Consider a 4 j bond maturing 8/15/9s, trading at 100:21 for settlement 2/15/94. Assume you purchase the bond on 2/15/94, and you sell it on 2/15/95. Let y denote the initial yield to...

1, (10 points) Consider a 485 bond maturing 8/15/95, trading at 100:21 for settlement 2/15/94. Assume you purchase the bond on 2/15/94, and you sell it on 2/15/95. Let y denote the initial yield to...

7, (10 points) Consider a 4% bond maturing 8/15/95, trading at 100121 for settlement 2/15/94. Assume you purchase the bond on 2/15/94, and you sell it on 2/15/95. Let y denote the initial yield to...

Evaluate the potential gains and losses for forwards,future,call options,put options and swaps. Outline and describe the different risks that each type of derivative contract faces. Describe...

Case Analysis 1. Compute the yield to maturity of Land'o'Toys' bonds before the purchase announcement and use it to determine the likely current bond rating. (Compare YTM to the table on p. 269)....

Mind solving should show you got your answers 31. As a mid-size company, you have a pension plan which pays out $10 million a year forever. The first payment is exactly one year from now. The term...

On June 15, 2011, Malmo City authorizes the issuance of $500,000 par of 6 percent serial bonds to be issued on July 1, 2011, and to mature in annual serials of $100,000 beginning on July 1, 2012. The...

Assume we use a pressure gauge to measure the air pressure at street level and at the roof of a tall building. If the pressure difference can be determined with an accuracy of 1 mbar (0.001 bar) what...

Identify two publicly traded oil and gas partnerships that are currently marketed to investors, describe the benefits the promoters claim will result from such investments, and briefly review the...

last two options for the multiple choice are : performance management development A construction equipment manufacturer, Roswell Corporation, is focusing on becoming a leader in sustainability in...

Are my points each supported by at least two subpoints?

Have I worked oral citations into my outline to avoid unintentional plagiarism?

Take a look at your research. Of all the evidence you have gathered for your speech, what jumps out at you? Did you come across any statistics that shocked you? Did you encounter any individuals...