Chapter 6_Solutions_14thEdition.doc - Chapter6...

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Chapter 6Fixed Income Securities:  Characteristics and ValuationCHAPTER 6FIXED INCOME SECURITIES:CHARACTERISTICS AND VALUATION SOLUTIONS TO PROBLEMS:1. a.Po= I/kdI = $1000 X .04 = $40kd= .04Po= $40/.04 =$1000b.I = $40kd= .05Po= $40/.05 =$800c.I = $40kd= .06Po= $40/.06 =$666.672.a.kd= I/PoI = $40Po= $790kd= $40/$790 = 0.0506 (or5.06%)b.I = $40Po= $475kd= $40/$475 = 0.0842 (or8.42%)n3.a. Po=I/(1 + kd)t+ M/(1 + kd)nt=16-1Internal
Chapter 6Fixed Income Securities:  Characteristics and ValuationI = .0875 X 1000 = $87.50kd= 0.07M = $1000n = 12 years (2028 - 2016)12Po=87.50/(1 + 0.07)t+ 1000/(1 + 0.07)12t=1= 87.50(PVIFA.07,12) + 1000 (PVIF.07,12)= 87.50(7.943) + 1000 (0.444) =$1139(tables and calculator)b.I = $87.50kd= .09M = $1000n = 1212Po=87.50/(1 + .09)t+ 1000/(1 + 0.09)12t=1= 87.50 (PVIFA0.09,12) + 1000(PVIF0.09,12)= 87.50(7.161) + 1000 (0.356) =$983 (Tables)$982 (Calculator)c.I = $87.50kd= .11M = $1000n = 1212Po=87.50/(1 + 0.11)t+ 1000/(1 + 0.11)12t=1= 87.50 (PVIFA0.11,12) + 1000(PVIF0.11,12)= 87.50(6.492) + 1000 (0.286) =$854(tables and calculator)Solution to the last question in the problem:I = .0875(1000)/2 = $43.75M = $10006-2Internal
Chapter 6Fixed Income Securities:  Characteristics and Valuationkd= 0.08/2 = 0.04;n = 12 X 2 = 2424Po=43.75/(1 + 0.04)t+ 1000/(1 + 0.04)24t=1= 43.75(PVIFA0.04,24) + 1000(PVIF0.04,24)= 43.75(15.247) + 1000(0.390) =$1057

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Term
Spring
Professor
Nathan

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