F370 B2 Study Pack 
Page 1
© 2010 Dan Greiner
Study Pack for the B2 Lecture
Vocabulary for the B2 Lecture
YieldtoMaturity, Implied Return or Implied Yield
Competitive Yield,
The Yield Curve
Price Risk
Maturity Risk and Risk Premiums (also called InterestRate Risk)
Selling at Par
A Default
Default Risk and Risk Premiums,
Distressed Firm
The Workout Process or Game
Bond Ratings
Collateral, Covenants, Seniority
Formulas for the B2 Lecture
r
T,x
=
r
f
+
r
mp,x
r
C,x
=
r
T,x
+
r
dp
r
C,x
=
r
f
+
r
mp,x
+
r
dp
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View Full DocumentF370 B2 Study Pack 
Page 2
© 2010 Dan Greiner
Problem Set for B2 Lecture
Treasury Bonds
1.
Consider the following table of data collected for a sample of Treasury Debt. Calculate
the yieldtomaturity and maturity risk premium (rightmost columns) for each of these
securities. Assume that the Face Value of all of these debt contracts is $1,000.
Security
Remaining
Term
(Years)
Market
Price
Coupon
Rate
YTM
Maturity
Risk
Premium
Bill
1
$973.24
0%
Note
3
$1,008.93
4.0%
Note
5
$956.53
3.5%
Bond
10
$1,159.61
7.1%
Bond
20
$949.47
5.0%
Bond
30
$1,031.35
5.9%
2.
Consider the 20year Treasury bond in the table above. Suppose that you buy it today for
its market price of $949.47. If you hold the bond for one year and the yield curve does
not change at all over that year, then how much return will you have experienced when
you sell the bond next year?
3.
Suppose that you observe a 1year TBill selling for $962.46 and a 15year TBond
selling for $932.46. If the TBond has a coupon rate of 5.4%, then what is the implied
premium for maturity risk
r
mp,15
on the 15year TBond?
4.
Two treasury bonds both have a face value of $1,000 and a coupon rate of 10%. Bond A
has 2 years remaining before it matures and has a current yield to maturity of 7.67%.
Bond B has 12 years remaining before it matures and a current yield to maturity of
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 Spring '10
 Tom
 Interest, Yield Curve, Dan Greiner, B2 Study Pack

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