International bonds and markets, Marketing Management

International Bonds and Markets

(a) Calculate both Macaulay and modified durations of the 8-year, 8.5% coupon bond given a flat yield curve a 10%.                             

(b) Explain why zero coupon bonds have a higher Macaulay Duration than coupon paying bonds of the same return.                                                                     

(c) Comments on what is meant by the statement: "The financial markets are markets for loanable funds."                                                                                     

(d)   Define the following international bonds and markets:

a. Eurobond Market

b. Foreign Bond

c. Internal Market or National Market

d. External Market or Offshore Market

e. Interbank Foreign Exchange Market

Question

1. Generate the price-yield curve for a zero-coupon bond with a face value of £100 and 260 actual days to maturity using the following annual yields: 4%, 4.25%, 4.5%, 4.75%, 5%, 5.25%, 5.5%, 5.75%, 6%, 6.25%, 6.5%, 6.75%, 7%, 7.25, 7.5%, 7.75%, and 8%. Use actual/actual day count convention

2. Given a 10-year, 8% coupon bond with a face value of £100 and semi-annual coupon payments:

a. Generate the bond's price-yield curve using annual yields ranging from 5% to 10% and differing by .5%.

b. what is the price change when the yield increases from 8% to 8.5%?

c. What is the price change while the yield decreases from 8% to 7.5%?

d. Comment on the capital gain and capital loss you observe in b and c.

e. Comment on the features of the price-yield curve.                           

3. Explain why the yield curve for lower quality bonds could be negatively sloped when the yield curves for other bonds are not.

 

Posted Date: 2/14/2013 5:20:36 AM | Location : United States







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