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6 13 Soln to H3

6 13 Soln to H3 - TTM 1 2 3 4 5 at t=0 Rate DFt 0.979048365...

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at t=0 at t=1 TTM Rate TTM Rate DFt 1 2.14% 0.979048365 1 2.3900% 0.9766579 2 2.45% 0.9527436755 2 2.7000% 0.9481108 3 2.75% 0.9218377914 3 3.0000% 0.9151417 4 2.98% 0.8891774701 4 3.2300% 0.8805952 5 3.21% 0.8538687309 4.5966760328 3.7205055 Given Coupon Rate 3.250% M \$1,000 PV(Coupons) \$149.39 PV(Coupons) \$120.92 PV(M) \$853.87 PV(M) \$880.60 \$1,003.26 \$1,001.51 25 basis points hpr 3.0651% DF t Σ DF t Σ DF t P 0 P 1 At t=1, the TS undergoes an upward parallel shift of

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2. The yield to maturity on a 27-year 10.35% annual coupon bond is 16.65%. (a) Explain why, or why not, would this bond sell at a discount. Because C/M is less than y, the YTM, the bond will sell at a discount. Given: YTM= 16.65% M= \$1,000 C/M= 10.35% and n= 27 years. We can work out C= \$103.50 and P= \$627.54 Yield to Maturity: Time Cash Flows We confirm YTM Check reinvestment income calculations (NOT a part of Hwk) 0 \$(627.54) 16.65000% Coupon # RI on Coupon # 1 \$103.50 YTM calcns imply that: 1 \$5,571.21 2 \$103.50 time 27 wealth \$40,135.43 2 \$4,761.23 3 \$103.50 profit \$39,507.89 3 \$4,066.87 4 \$103.50 capital gain \$372.46 4 \$3,471.61 5 \$103.50 coupons \$2,794.50 5 \$2,961.32 6 \$103.50 6 \$2,523.86 7 \$103.50 Reinvestment income \$36,340.93 7 \$2,148.85 8 \$103.50 91.984% 8 \$1,827.36 9 \$103.50 9 \$1,551.76 10 \$103.50 10 \$1,315.50 11 \$103.50 11 \$1,112.96 12 \$103.50 12 \$939.33 13 \$103.50 13 \$790.48 14 \$103.50 14 \$662.88 15 \$103.50 15 \$553.49 16 \$103.50 16 \$459.71 17 \$103.50 17 \$379.32 18 \$103.50 18 \$310.41 19 \$103.50 19 \$251.33 20 \$103.50 20 \$200.68 21 \$103.50 21 \$157.26 22 \$103.50 22 \$120.04 23 \$103.50 23 \$88.14 24 \$103.50 24 \$60.78 25 \$103.50 25 \$37.33 26 \$103.50 26 \$17.23 27 \$1,103.50 27 \$- YTM 16.650000% Total \$36,340.93
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6 13 Soln to H3 - TTM 1 2 3 4 5 at t=0 Rate DFt 0.979048365...

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