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purchased to yield 12% one year ago and sold today with
the interest rate being 10%?
704 2004 Bonds last lect
Maturity
4
4
6
Initial Yield
12%
12%
12%
New yield
10%
10%
10%
Coup Rate
8%
0%
12%
Coupon
80
0
120
R878.51
R635.52
R1,000.00 Price at beg of year 1
at yield of 12%
0
R878.51
R635.52
R1,000.00
1
R80.00
R0.00
R120.00
2
R80.00
R0.00
R120.00
3
R80.00
R0.00
R120.00
4
R1,080.00
R1,000.00
R120.00
5
R120.00
6
R1,120.00
0
R950.26
R751.31
R1,075.82
Price at beg of year 1
at yield of 10%
1
R80.00
R0.00
R120.00
Note one less year to ma
2
R80.00
R0.00
R120.00
3
R1,080.00
R1,000.00
R120.00
4
R120.00
5
R1,120.00
0
R878.51
R635.52
R1,000.00
R2,514.02
Price at beg year 1
1
R1,030.26
R751.31
R1,195.82
R2,977.39 Price at end year 1 Plus
18.431%
2977.39
/
2514.02  1
a)
What is the total yield for the following portfolio of government bonds
i)
4year, 8% annual coupon bond
ii)
4year, pure discount bond
iii)
6year, 12% annual coupon bond.
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View Full Document ture.xls
aturity
coupon
Coupon
Period
Yield
Call at
Call after
Price
Yield 2
10%
3
1025
2
1020
5%
=RATE(n,pmt,pv,fv,type)
Current Yield
9.80%
=Coupon*1000/Price
Yield of Bond
i)
9.21%
=
RATE( Period, Coupon*1000, Price, 1000, 0)
Price in absence of all when yield drops to 5%
ii)
R 1,047.62
=PV(Yield2,Period, Coupon*1000, 1000,0)
Yield to call
iii)
1020
100
1125
10.0%
a)
A 3year 12% annual coupon bond callable after 2 years for R1050, sells for R1040
i)
Determine the yield to maturity
ii)
If the interest rates were to change to 5% after two years, determine the price of
the bond without the call option.
iii)
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This note was uploaded on 05/13/2010 for the course FIN 704 taught by Professor Visser during the Fall '10 term at University of South Africa.
 Fall '10
 visser
 Interest, Interest Rate

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