chapter6-quantosanalytics.docVIP

Chapter 6 Valuing Bonds 6-4. Suppose the current zero-coupon yield curve for risk-free bonds is as follows: a. What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? b. What is the price per $100 face value of a four-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a five-year maturity? a. b. c. 6.05% 6-6. Suppose a 10-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for a price of $1034.74. a. What is the bond’s yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond’s yield to maturity changes to 9% APR, what will the bond’s price be? a. Using the annuity spreadsheet: NPER Rate PV PMT FV Excel Formula Given: 20 –1,034.74 40 1,000 Solve For Rate: 3.75% =RATE(20,40,–1034.74,1000) Therefore, YTM = 3.75% × 2 = 7.50% b. Using the spreadsheet With a 9% YTM = 4.5% per 6 months, the new price is $934.96 NPER Rate PV PMT FV Excel Formula Given: 20 4.50% 40 1,000 Solve For PV: (934.96) =PV(0.045,20,40,1000) 6-10. Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. a. Is this bond currently trading at a discount, at par, or at a premium? Explain. b. If the yield to maturity of the bond rises to 7% (APR with semiannual compounding), what price will the bond trade for? a. Because the yield to maturity is less than the coupon rate, the bond is trading at a premium. b. NPER Rate PV PMT FV Excel Formula Given: 14 3.50% 40 1,000 Solve For PV: (1,054.60) =PV(0.035,14,40,1000) 6-11. Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a. What was the price of this bond when it was issued? b. Assuming the yield to maturity remains constant, what is the price of the bond immedia