Posted: March 12th, 2023
Finance- Plagiarism free pls
1.You are planning to attend an master level Program that will require payment of $11,000 a year in tuition expenses at the end of each year for 2 years. Bonds currently yield 8.35%.
a What is the present value of your obligation ? ( sample answer: $25,000)
b What is the duration of your obligation ? (sample answer: 2.53 years)
c Suppose you wish to fund your obligation using 1-year zero-coupon bonds and perpetuity bonds. How much of 1-year zero in dollar (input example: $25,000) and how much of perpetuity bonds in dollar (sample answer: $25,000 ) will you want to hold to both fully fund and immunize your obligation?
Suppose you buy 1-year zero-coupon bonds and perpetuity bonds to immunize your obligation. Now suppose that rates immediately increase to 9%.
e.
What is your tuition obligation now? (sample answer: $25,000)
f.
What is the value of your position in 1-year-zero-coupon bonds now ? (sample answer: $25,000)
g.
What is the value of your position in perpetuity now ? (sample answer: $25,000)
2.As a bond analyst at Morgan Stanley Investment Banking, you are performing an analysis on bond yiel
d.
You have the following data for a bond issued by Intel Corp. The bond has 7% coupon and 20-year maturity. The bond sells for $1,150 and is callable in 10 years at a call price of $1,250. The bond has a face value of $1000 and makes semiannual coupon payments.
a.
What is the annual Yield to Call? (sample answer: 12.45%)
b.
What is the annual Yield to Maturity? (sample answer: 12.45%)
3As a financial analyst at Wells Fargo, you are analyzing how the change in yield impacts the bond price. A bond has a duration of 11 years, a yield of 10%, a convexity of 140, and a market price of $1,000. Suppose the market yield increases by 60 basis points.
What is the percentage change in the bond’s price by the duration only formula? (sample answer: 2.25% or -2.25%)
What is the bond price after the yield change predicted by the duration only formula? (sample answer: $1050.65)
What is the percentage change in the bond’s price predicted by the duration with convexity formula? (sample answer: 2.25% or -2.25%)
What is the bond price after the yield change predicted by the duration with convexity formula? (sample answer: $1050.65)
4As a junior financial analyst at Citibank bond trading desk, John is analyzing the forward rate using the information from zero coupon bonds. Suppose 3 year zero coupon bond is priced at $839.60 and 4 year zero coupon bond is priced at $822.80.
Choose all correct answers. Please note that each incorrect answer will reduce the score by 10%.
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a. |
The forward rate from year 3 to 4 is 4.04% |
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| b. |
The 3 year zero coupon bond which is priced at $839.60 will have a YTM of 7%. |
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c. |
The 3 year zero coupon bond which is priced at $839.60 will have a YTM of 6%. |
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| d. |
The 4 year zero coupon bond which is priced at $822.80 will have a YTM of 7% |
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| e. |
The 4 year zero coupon bond which is priced at $822.80 will have a YTM of 6% |
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| f. |
The 3 year zero coupon bond which is priced at $839.60 will have a YTM of 8%. |
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| g. |
The forward rate from year 3 to 4 is 2.04% |
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h. |
The forward rate from year 3 to 4 is 3.04% |
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i. |
The 4 year zero coupon bond which is priced at $822.80 will have a YTM of 5% |
5.A financial analyst at JPMorgan Chase is evaluating a Treasury Inflation-Protected Security (TIPS bond) with a 3-year maturity, par value of $1,000, and a 8% coupon rate. The estimated average inflation rate will be 4% over the first year, 5% over the second year, and 6% over the third year.
What is the amount of the coupon payment the bond holder will receive in the first year ?（sample answer: $45) Second year ? (sample answer: $45)
What will be the face value of the bond at the end of first year ? (sample answer: $1,245.45) The second year ? (sample answer: $1,245.45)
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