Homework1

Bond Markets, Analysis and Strategies (6th Edition)

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Homework #1 1) a) PV 500,000.00 FV1 624,122.66 b) PV 500,000.00 I/Y 5.70% I/Y 7.20% I/Y 6.10% N 4.00 N 3.00 N 14.00 FV1 624,122.66 FV2 $768,872.47 FV $761,450.98 This investment is less 2) Bond A Bond B attractive than "part a." Coupon 8.00% Coupon 9.00% YearsTM 9.00 YearsTM 20.00 I/Y 7.00% I/Y 9.00% FV 100.00 FV 100.00 PMT 4.00 PMT 4.50 N 18.00 N 40.00 PV $106.59 PV $100.00 The price is above par because The price is equal to par the coupon is higher than the because the coupon is yield to maturity. equal to the yield to mat. 3) Years Liability 1.00 2,000,000.00 2.00 3,000,000.00 3.00 5,400,000.00 4.00 5,800,000.00 Total $16,200,000.00 Year1 Year2 Year3 Year4 PV -70,044,673.81 PV -73,368,069.02 PV -75,944,042.26 PV -76,315,789.47
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Unformatted text preview: FV 75,368,069.02 FV 78,944,042.26 FV 81,715,789.47 FV 82,115,789.47 I/Y 7.60% I/Y 7.60% I/Y 7.60% I/Y 7.60% N 1.00 N 1.00 N 1.00 N 1.00 Interest $5,323,395.21 $5,575,973.25 $5,771,747.21 $5,800,000.00 Int. toward Liab. Pmts $2,000,000.00 $3,000,000.00 $5,400,000.00 $5,800,000.00 Int. to be compounded 3,323,395.21 2,575,973.25 371,747.21 0.00 The four-year liability stream is covered perfectly with an initial investment of $70,044,673.81 @ 7.60% annually, with payments toward the liabilities deducted from the interest earned by the pension fund on a yearly basis....
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This document was uploaded on 04/07/2008.

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