Homework 2
FINC 414 Investments
Spring 2010
(Due on April 20, 2010)
You will be paying $10,000 a year in tuition expenses at then end of the next two years.
Current YTM is 8%.(This is for question 1 thru 3)
1. What is the duration of your obligation?
a) 0.58
b) 1.18
c) 1.48
d) 1.98
2 What maturity zerocoupon bond with a face value of $19,985.26 would immunize
your obligation?
a) 0.58
b) 1.18
c) 1.48
d) 1.98
3. Suppose you buy a zerocoupon bond with value and duration equal to your obligation.
Now suppose that rates immediately increases to 9%. What happens to your net position,
that is, to the difference between the value of the zero coupon bond and that of your
tuition obligation?
a) $7.5 4 b) $ 5.57
c) $2.35
d) $0.19
4. If the bank discount rate is 5.15% for a 91 day Tbill with par value of $1,000, what is
the bond equivalent yield?
a) 5.17%
b) 5.22%
c) 5.29%
d) 5.39%
An investor is considering the purchase of a 30year 7% coupon bond selling for $816
and a par value of $1,000. The YTM for this bond is 9%. This bond is semiannual coupon
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 Finance
 Finance, YTM, Zerocoupon bond

Click to edit the document details