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Unformatted text preview: Session 2: Bond Pricing A. For class discussion.
B.
i) At a YTM of 5.445%, the settlement price is $106. 426.
ii) The percentage change in price is –0.59%.
Valuation Yield or To Coupon Present
Coupon No. of Discount Rate Periods to Rate (%) (%) Maturity Per Period YTM C t r CPP PVA(r,t) FV PVF(r,t) Transaction Settlement Maturity Maturity
Date Date Date Per Value Face Present SETTLEMENT Period Annuity Value Value
($) Factor ($) Factor PRICE
($)
P0 11/11/05 15/11/05 15/05/13 5.345% 6.50% 15 2.6725% 3.250 12.2257 100 0.6733 107.060 11/11/05 15/11/05 15/05/13 5.445% 6.50% 15 2.7225% 3.250 12.1811 100 0.6684 106.426 Percentage Change 0.59% C.
i)
ii)
iii)
iv) The settlement price is $128.455.
The settlement price is $127.743.
The percentage change in price is –0.55%.
The low coupon bond is more price sensitive as the % drop in price is larger
for the low coupon bond (0.59%) than the high coupon bond (0.55%) given
the same basis point rise in rates. Valuation Yield or To Coupon Present
Coupon Transaction Settlement Maturity Maturity No. of Discount Per Rate Value Face Present SETTLEMENT Date Date Rate Periods to (%) (%) Maturity Per Period YTM Date Period Annuity Value Value C t r CPP PVA(r,t) FV PVF(r,t) ($) Factor ($) Factor PRICE
($)
P0 11/11/05 15/11/05 15/05/13 5.345% 10.00% 15 2.6725% 5.000 12.2257 100 0.6733 128.455 11/11/05 15/11/05 15/05/13 5.445% 10.00% 15 2.7225% 5.000 12.1811 100 0.6684 127.743 Percentage Change 0.55% D.
i)
ii)
iii)
iv) The settlement price is $104.566.
The settlement price is $104.161.
The percentage change in price is –0.39%.
The long term bond is more price sensitive as the % drop in price is larger for
the long term bond (0.59%) than the short term bond (0.39%) given the same
basis point rise in rates. Valuation Yield Or To Transaction Settlement Maturity Maturity
Date Date Date (%) Coupon Present
Coupon No. of Discount Rate Periods Rate (%) to Maturity Per Period Per Value Face Present SETTLEMENT Period Annuity Value Value
($) Factor ($) Factor PRICE
($) 1 YTM C t r CPP PVA(r,t) FV PVF(r,t) P0 11/11/05 15/11/05 15/05/10 5.345% 6.50% 9 2.6725% 3.250 7.9064 100 0.7887 104.566 11/11/05 15/11/05 15/05/10 5.445% 6.50% 9 2.7225% 3.250 7.8878 100 0.7853 104.161 Percentage Change 0.39% E. If interest rates are expected to rise (fall), I tend to shift funds away from the long (short)
term low (high) coupon bonds towards the short (long) term high (low) coupon bonds to
minimise (maximise) the potential capital loss (gain). 2 ...
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This note was uploaded on 10/23/2011 for the course FINS 2624 taught by Professor Hneryyip during the Three '10 term at University of New South Wales.
 Three '10
 HneryYip
 Valuation

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