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Howework2_Fixed_Income_Securities_Spring_2010

# Howework2_Fixed_Income_Securities_Spring_2010 - Homework 2...

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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 zero-coupon 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 zero-coupon 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 T-bill 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 30-year 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

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Howework2_Fixed_Income_Securities_Spring_2010 - Homework 2...

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