15.8 - = $372 QUESTIONS VALUE THE BOND & THE...

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“STRIPPED” OR “ZERO COUPON” BONDS PAGES: 124 & 187
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“STRIPPED” OR “ZERO COUPON” BONDS A BOND THAT MAKES NO INTEREST PAYMENTS HOW DO IS THIS BOND PRICED? PRESENT VALUE OF FUTURE CASH FLOWS
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$500 June 30, 2010 $500 Dec. 31, 2009 $500 June 30, 2009 $500 Dec. 31, 2008 $500 June 30, 2008 $500 Dec. 31, 2007 $500 June 30, 2007 $500 Dec. 31, 2006 $500 June 30, 2006 $500 Dec. 31, 2005 Government of Ontario 10,000 June 30, 2010 Coupon Rate 10% Ten Thousand Dollars
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PV of Interest: = $500 PF IFA {6%/2 = 3%, 5 X 2 =10} = $500 X 8.530  = $4,625 PV of Principal: = $10,000 PF IF {6%2 = 3%, 5 X 2 =10}  = $10,000 X 0.744 = $7,440 Price = $4,625 + $7,440 = VALUE REGULAR BOND @ YTM OF 6%
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HOW MUCH WOULD YOU PAY FOR THE LAST COUPON - YTM @ 6% PV of June 30,2010 Interest Payment: = $500 PF IF {6%/2 = 3%, 5 X 2 =10} = $500 X 0.744
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Unformatted text preview: = $372 QUESTIONS VALUE THE BOND & THE LAST PAYMENT WITH A YTM OF 8%. (SAME 5 YEAR PERIOD) WHICH IS MORE VOLATILE: THE REGULAR BOND THE STRIPPED COUPON BOND PV of Interest: = $500 PF IFA {8%/2 = 4%, 5 X 2 =10} = $500 X 8.111 = $4,056 PV of Principal: = $10,000 PF IF {8%2 = 4%, 5 X 2 =10} = $10,000 X 0.676 = $6,760 Price = $4,056 + $6,760 = VALUE REGULAR BOND @ YTM OF 8% HOW MUCH WOULD YOU PAY FOR THE LAST COUPON- YTM @ 8% PV of June 30,2010 Interest Payment: = $500 PF IF {8%/2 = 4%, 5 X 2 =10} = $500 X 0.676 = $338 VOLATILITY REGULAR BOND STRIPPED COUPON @ 6% $11,705 $372 @ 8% $10,816 $338 LOSS $ 889 $ 34 % VOLATILITY 7.6% 9.1%...
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15.8 - = $372 QUESTIONS VALUE THE BOND & THE...

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