nhw8a - Homework 8 1. A. Calculate the value of a 3 year 8%...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Homework 8 1. A. Calculate the value of a 3 year 8% coupon bond with semiannual payments, 1000 par. Expected return is the risk free rate of 3%. (40/.015)*(1-1/(1+.015)^6)+1000/(1+.015)^6= 1142.429679 B. If in 50 days the next coupon will be paid, what is the accrued interest, if there are 182 days in a semiannual coupon period? 40((182-50)/182)=29.01098901 C. Note: For this question the inflation rates are actual inflation levels ( so a 6 month inflation rate increase of 3% increases par by 3%, not 1.5%.) You have a semiannual treasury inflation protected security, which is 1000 par and sells at par, with a 4% coupon rate. If the inflation rates are: 2% for the first 6 months and then 4% for the second, 3% for the third and 2% for the fourth 6 months, find: -What are the individual nominal payments made for each time period? Period inflation par coupon payment 0 1000 1 .02 1020 20.4 2 .04 1060.8 21.216 3 .03 1092.624 21.85248 4 .02 1114.476 22.28952 At time 4 there is also the payment of 1114.476 -What is the total amount paid including par? 1114.476+20.4+21.216+21.85248+22.28952=1200.234
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/15/2011 for the course ECON 171 taught by Professor Hull during the Spring '09 term at Brandeis.

Page1 / 2

nhw8a - Homework 8 1. A. Calculate the value of a 3 year 8%...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online