Compute the price of each bond, Cost Accounting

P1

Given the following data:











 

German Bond

U.S. T- Bonds










Maturity

25

30










Coupon Rate

4.88%

4.50%










YTM

3.10%

2.80%










Face Value

 $             1,000.00

 $              1,000.00










Coupon payment

Annually

Semi-Annually









a

Compute the price of each bond.










b

Compute the duration and modified duration of each bond








c

Suppose the yield levels increase by 1%.  Calculate the relative price change for each bond.







Estimate the relative price change for each bond using duration. Comment on the accuracy of the estimation.
















P2

An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000.






The investor is unsure of his investment horizon and considers 5 horizons: 5, 6, 7, 8, and 9 years.






Suppose that immediately after the investor has bought the bond, the interest rate changes.







Compute the investor's annual return for each of the 5 horizons for two scenarios: the yield increases by 1% and the yield decreases by 1%.


Put differently, complete the following table:























Annual Return










Horizon (years)

YTM = 5.5%

YTM = 3.5%










5

 

 










6

 

 










7

 

 










8

 

 










9

 

 





















P3

Given the data for the following bonds










Bond

Coupon

Maturity

YTM

Face Value








1

0

1

4%

1000








2

4.50%

2

6%

1000








3

6%

2


1000








Assume all bonds pay annual coupon.









a

Compute the price of the 3rd bond.










b

Calculate the YTM of the 3rd bond.






















Posted Date: 2/14/2013 2:08:28 AM | Location : United States







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