1 answer

You just started work at a wealth management firm and your boss asks you to evaluate...

Question:

You just started work at a wealth management firm and your boss asks you to evaluate a 7-year bond with a face value of $1,000 that, according to the prospectus, you can purchase next month (01-February-2019) when it is initially issued. The bond is designed to provide a 5.9% yield-to- market (YTM) and makes annual 01 February coupon payments, with both the last coupon payment and the redemption scheduled for 01 February 2026. The underwriter has stated the issuers intention to sell the bonds at face value (par) and your plan is purchase the bonds accordingly for $1,000 apiece, meaning the coupon and the YTM will be the same on the date of the February 1sale. A. If the YTM is expected to remain constant, what is the minimum price you would accept to sell the bond on January 31, 2021, the day before you receive the 2nd coupon payment? O A O C O D O E 942.51 1,000.00 1,014.75 1,029.50 1,059.00B. What is the duration stated in years on February 2, 2021, two days after the sale (i.e., the new buyer has already received the February 1, 2021 coupon payment)? (Hint: At this point, there are 5 years until maturity, so the duration must be less than or equal to that amount.) O A. 4.83 years 4.47 years 2.25 years 1.97 years O E.1.82 years O C O D C. What is the modified duration at that same time? 4.22 years 4.13 years 3.97 years 3.88 years 3.42 years O C

You just started work at a wealth management firm and your boss asks you to evaluate a 7-year bond with a face value of $1,000 that, according to the prospectus, you can purchase next month (01-February-2019) when it is initially issued. The bond is designed to provide a 5.9% yield-to- market (YTM) and makes annual 01 February coupon payments, with both the last coupon payment and the redemption scheduled for 01 February 2026. The underwriter has stated the issuer's intention to sell the bonds at face value (par) and your plan is purchase the bonds accordingly for $1,000 apiece, meaning the coupon and the YTM will be the same on the date of the February 1sale. A. If the YTM is expected to remain constant, what is the minimum price you would accept to sell the bond on January 31, 2021, the day before you receive the 2nd coupon payment? O A O C O D O E 942.51 1,000.00 1,014.75 1,029.50 1,059.00
B. What is the duration stated in years on February 2, 2021, two days after the sale (i.e., the new buyer has already received the February 1, 2021 coupon payment)? (Hint: At this point, there are 5 years until maturity, so the duration must be less than or equal to that amount.) O A. 4.83 years 4.47 years 2.25 years 1.97 years O E.1.82 years O C O D C. What is the modified duration at that same time? 4.22 years 4.13 years 3.97 years 3.88 years 3.42 years O C

Answers

Year cash flow present value of cash flow = cash flow/(1+r)^n r = 5.9%
1 59 55.71293673
2 59 52.60900541
3 59 49.67800322
4 59 46.91029577
5 59 44.29678543
6 1059 750.7929734
value of bond sum of present value of cash flow 1000
Year cash flow present value of cash flow = cash flow/(1+r)^n r = 5.9% year*present value
1 59 55.71293673 55.71293673
2 59 52.60900541 105.2180108
3 59 49.67800322 149.0340097
4 59 46.91029577 187.6411831
5 1059 795.0897589 3975.448794
value of bond sum of present value of cash flow 1000
sum of year*present value 4473.054935
duration of bond = sum of present value*year/price of bond 4473.054/1000 4.47
Modified duration of bond macculay duration/(1+r) 4.47/(1.059) 4.22
.

Similar Solved Questions

1 answer
Describe Yoyield Theoretical Tamm = 700mmHg 1tort=1 mmHg 1000 meq = 16 Molarity (M)= Liter II=M·RTi...
describe Yoyield Theoretical Tamm = 700mmHg 1tort=1 mmHg 1000 meq = 16 Molarity (M)= Liter II=M·RTi Question 9 Determine the molar mass for Caz(PC 295 89.9 124 310 • Previous...
1 answer
What is the least common factor of minus four and two??
What is the least common factor of minus four and two??...
1 answer
If you pay $800 for the right to receive $100 per year for 5 years with...
If you pay $800 for the right to receive $100 per year for 5 years with $1,000 lump sum in year 5, what rate did you earn?...
1 answer
The instructions are from A to G ACR52 on November 1, 2022, Ikonk, Inc. had the...
the instructions are from A to G ACR52 on November 1, 2022, Ikonk, Inc. had the following account balances. The company uses the perpetual inventory method. Debit Credit Cash $ 9,000 Accumulated Depreciation- Accounts Receivable 2,240 Equipment $ 1.000 Supplies 860 Accounts Payable 3,400 Equipment 2...
1 answer
3. Construct a push down au gprnerated by a grammar with producti (npda) that accepts the lana B--b b. Show that the npda in part a accepts the language a 0 RE 3. Construct a push down au gp...
3. Construct a push down au gprnerated by a grammar with producti (npda) that accepts the lana B--b b. Show that the npda in part a accepts the language a 0 RE 3. Construct a push down au gprnerated by a grammar with producti (npda) that accepts the lana B--b b. Show that the npda in part a accepts...
1 answer
An X ray beam of wavelength 77.00 pm is directed along the x axis in the...
An X ray beam of wavelength 77.00 pm is directed along the x axis in the positive x direction and is incident on a carbon target. Scattered X rays are detected at an angle to the x axis of pi/2 radians. For each of these scattered X rays an electron is produced with momentum component in the x direc...
1 answer
The voltaget the POINT in problem Acha = 2 is placed problem 1 Calculate the force...
the voltaget the POINT in problem Acha = 2 is placed problem 1 Calculate the force placed at the POINT the Probleme on of problem 3 calealate the potential energy of the change and the potential energy of the system Problems C ute the three current and the door the concitor in the circut DC SteadySt...
1 answer
Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and...
Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented incom...
1 answer
Pick a crime from the media that has occurred in the last 6 months and write a summary of the events. Ex...
Pick a crime from the media that has occurred in the last 6 months and write a summary of the events. Explain the crime(s) that person is being charged with In your opinion, what kind of punishment should the offender receive and why? Pick a crime from the media that has occurred in the las...
1 answer
Provide a detailed mechanism showing each elementary step in the proces, one at a time, to...
Provide a detailed mechanism showing each elementary step in the proces, one at a time, to prepare SYMMETRICAL SULFIDES FROM ALKYL DIHALIDES AND SODIUM SULFIDE....
1 answer
Let's put this into action, in rewriting a while loop to a for loop, in the...
Let's put this into action, in rewriting a while loop to a for loop, in the context of the provided function allnum (strlist), which takes a list of strings strlist, and returns the list of strings which are made up exclusively of digits (in the same order the strings occurred in the original). ...
1 answer
How do you solve and graph #8<=r-14#?
How do you solve and graph #8<=r-14#?...
1 answer
Sheila transfers to Poseidon Corporation $9,000 cash and machinery having an $11,000 basis and a $26,000...
Sheila transfers to Poseidon Corporation $9,000 cash and machinery having an $11,000 basis and a $26,000 FMV in exchange for 60 shares of Poseidon stock. The machinery was used in Sheila​'s ​business, originally cost Sheila $37,000​, and is subject to a $21,000 ​liability...
1 answer
On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in...
On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in cash. The equipment had originally cost $171,000 but had a book value of only $104,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed u...
1 answer
2. Write out the required reagents/reaction conditions or Lewis structures for the productis) produced for 18...
2. Write out the required reagents/reaction conditions or Lewis structures for the productis) produced for 18 of the following 21 reactions. Answer only (18), otherwise only the first (18) will be graded (72 pts/4 pts each) NOTE: C(=O) represents C=0 a. CH3CH2OH → CH3-C(=O)-H b. CH3-C(=O)-CI CH...