PS 3 - Econ S-1452 Summer, 2010 Problem Set 3 (Due Monday,...

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Summer, 2010 Problem Set 3 (Due Monday, July 26) 1. Describe the similarities and differences among traditional mutual funds, exchange- traded funds, and hedge funds. 2. You are considering the purchase of a bond that has 16 years to maturity and an annual coupon rate of 6.35% which pays semi-annually. a. If the purchase price is $1,249, what is the yield-to-maturity? N: 32 PV: -1249 PMT: 31.75 FV: 1000 This gives YTM= 4.197% b. Suppose that this bond is callable in 4 years at 107% of par. What is the yield to call on this bond? If interest rates remain unchanged, is it likely that this bond will be called? Why or why not? N: 8 PV: -1249 PMT: 31.75 FV: 1070 This gives CPT= 1.6% As CPT < YTM this bond is traded on a premium and is likely to be called. 3. A bond with a coupon rate of 4.70% is priced with a 6.30% yield to maturity. Coupon interest is paid semi-annually. The bond has 5 years remaining to maturity. a.
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PS 3 - Econ S-1452 Summer, 2010 Problem Set 3 (Due Monday,...

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