Today is 01/01/2015. We borrow funds to buy bonds and need to make a debt payment...

 

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Today is 01/01/2015. We borrow funds to buy bonds and need to make a debt payment of $1,000 on 6/30/2017. We can only invest in the following two bonds: Bond A: a risk-free pure discount bond (nominal $100) that matures on 12/31/2017. Bond B: a risk-free coupon bond (nominal $100) that pays an annual interest (on 12/31) of 8% and matures on 12/31/2016. Assume a flat term structure of 6%. 1) Based on 6% yield for the debt due on 06/30/2017, how much money do we borrow today? What is the SDuration of this debt? (4 points) b) What is the currekt price (in dollar amount) of Bond A (the pure discount bond, nominal $100, maturing on 12/31/2017)? What is the SDuration of Bond A? (4 points) c) What is the current price (in dollar amount) of Bond B (nominal $100, annual 8% coupon, maturing on 12/31/2016)? What is the $Duration of Bond B? (4 points) Today is 01/01/2015. We borrow funds to buy bonds and need to make a debt payment of $1,000 on 6/30/2017. We can only invest in the following two bonds: Bond A: a risk-free pure discount bond (nominal $100) that matures on 12/31/2017. Bond B: a risk-free coupon bond (nominal $100) that pays an annual interest (on 12/31) of 8% and matures on 12/31/2016. Assume a flat term structure of 6%. 1) Based on 6% yield for the debt due on 06/30/2017, how much money do we borrow today? What is the SDuration of this debt? (4 points) b) What is the currekt price (in dollar amount) of Bond A (the pure discount bond, nominal $100, maturing on 12/31/2017)? What is the SDuration of Bond A? (4 points) c) What is the current price (in dollar amount) of Bond B (nominal $100, annual 8% coupon, maturing on 12/31/2016)? What is the $Duration of Bond B? (4 points)