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Problem 3.






Problem 1

You invested your savings in 6 % coupon bond with the face value of 1000 USD and 3 years maturity. Suppose you have kept this bond for one year and now you are considering your bond for selling before maturity. At what price will you sell the bond? Interest rate is 7%.

 

Solution: 60/1, 07 + 1060/ (1, 07) 2 = 981, 92

 

Problem 1.

You invested your savings in 8% coupon bond with the face value of 1000 USD and 3 years maturity. Suppose you have kept this bond for one year and now you are considering your bond for selling before maturity. At what price will you sell the bond if interest rate is 7%?

 

Solution: 80/1, 07 + 1080/(1, 07) 2 = 1018, 08

 

Problem 1.

You invested your savings in 8% coupon bond with the face value of 1000 USD and 3 years maturity. Suppose you have kept this bond for one year and now you are considering your bond for selling before maturity. At what price will you sell the bond if interest rate is 9%?

 

Solution: 80/1, 09 + 1080/ (1, 09) 2 = 982, 41

Problem 1.

You invested your savings in 7% coupon bond with the face value of 1000 USD and 3 years maturity. Suppose you have kept this bond for one year and now you are considering your bond for selling before maturity. At what price will you sell the bond if interest rate is 8%?

Solution: 70/1, 08 + 1070/(1, 08) 2 = 982, 16

 

 

Problem 2.

You want to invest in a ten-year, 7% coupon bond with a face value of $1000 that is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10.

 

R= (70+ 880.10-871.65)/871.65 = 9%

 

Problem 2.

You decided to buy a 5-year bond, 7% with a face value of $ 1000 that is currently selling for $ 850. Compute your rate of return if you are selling this bond next year for $ 865.

 

R = (70+ 865-850)/850 = 10%

 

Problem 2.

You want to invest in a ten-year 8% coupon bond with a face value of $ 1000 that is currently selling for 860. Compute you rate of return if you sell the bond next year for $ 900.

 

R= (80+ 900 – 860)/860 = 13, 95%

Problem 2.

You decided to buy a 5-year bond, 8% with a face value of $ 1000 that is currently selling for $ 850. Compute your rate of return if you are selling this bond next year for $ 890.

 

R = (80+890-850)/850 = 14, 12%

 

Problem 3.

You are working for BTA and you are asked to estimate the interest rate risk of the bond portfolio (in $ terms) corporate bonds with the 8% coupon rate and 4 years maturity. The face value of a bond is 1000$. Suppose the current interest rate is 9%. Calculate the duration.

  73, 39 73, 39 0, 0758
  67, 33 134, 66 0, 1392
  61, 77 185, 31 0, 1915
  765, 10 3060, 40 3, 1629

967, 59 3, 5694

 

Problem 3.

Calculate the duration on a four – year 7% coupon bond with the face value of 10 000 if the current interest rate is 8%. You have to draw the table to solve the problem.

 

  64, 81 64, 81 0, 0682
  58, 92 117, 84 0, 1240
  54, 55 163, 65 0, 1722
  772, 12 3088, 48 3, 2497

950, 40 3, 6141

 

 

Problem 3.

Calculate the duration on a three – year 7% coupon bond with the face value of 1000 if the current interest rate is 8%. You have to draw the table to solve the problem.

 

  64, 81 64, 81 0, 0671
  58, 92 117, 84 0, 1220
  55, 57 166, 71 0, 1726
  786, 48 3145, 92 3, 2574

965, 78 3, 6191

 

Problem 3.

Calculate the duration on a three – year 6% coupon bond with the face value of 1000 if the current interest rate is 7%. You have to draw the table to solve the problem.

 

  56, 07 56, 07 0, 0580
  52, 41 104, 82 0, 1085
  48, 98 146, 94 0, 1521
  808, 67 3234, 68 3, 3481

966, 13 3, 6667

 






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