Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to
Bond Values and the Passage of Time
1.
Part a.
.952569 .937022
= .077735
.7
=
.2
Part b. coup can be calculated by recognizing that the synthetic alternative to a
coupon is a p
Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to
The Grammar of Fixed Income Securities
1.
Part
Part
Part
Part
Part
Part
a.
b.
c.
d.
e.
f.
$100/(1.20)3 = $57.87.
$100/(2)3 = $12.50.
$100/(1)3 = $100.
$100/(1.10)6 = $56.45.
$100
1. a.
represent cash flows at the end of each year; represent continuously compounded annualized
yield at each time period, which are on the yield curve indicated by 8%. Using the following
equation, we derived the following results.
b.
represent cash flo
Robert H. Smith School of Business
University of Maryland
Fixed Income Analysis (BUFN 762)
(Adventures in Debentures)
Fall 2012 Term B
Instructor: Professor Haluk Unal (3014052256)
Office: VMH 4429, [email protected]
Teaching Assistant: "Xingzhou (R
Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to
Bond Valuation Using Synthetics
1.
Part a. For time period 0.0, the value of this constant coupon bond is:
20
etrt ) + 9363.03e20.099444
10,000.03 = (1009.09
t=1
For time period
Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to
Interpreting Bond Yields
1.
Part a. To calculate the yields on the 3 bonds, solve:
550
100 = y 2 yA = 85.24%
(e A )
100 =
225
yB = 81.09%
(eyB )
100 =
450
yC = 150.41% .
(eyC )
TERM STRUCTURE OF INTEREST RATES
There is no single market yield
 Every bond has its own yield
Bond Yields
All bond yields can be expressed as:
Bond Yield=Base Rate+ Spread


The base rate (the benchmark rate)
o Base Rate: the minimum interest rate inv
Chapter 10
1. For the annuity bond, the annually compounded rate is 14.42%
Delta of face value paid in year 30 is 0.1263
The only difference between a coupon bond and an annuity with the same maturity is that the
constant coupon bond will pay a face value
Chapter 7
1.a.
Bond C has the highest yield, however, bond A is the most undervalued. Thus, yield is not a
reliable guide for investment decision.
b.
Portfolio with Bond B and Bond C has the highest yield, however, portfolio with Bond A
and Bond C is the
1. a. ,
b.,
c.,
d.,
e.,
f.,
2.
a.
b.
c.
d.
3. a.
Since the trade date is 9/16/92, the settlement date is 9/17/92. Last coupon payment date was
6/30/92. ; ; ; ; ; ; After calculation, we have the following results:
b. The price for Tbill can be calculated
Copyright c 2007 by Michael R. Gibbons
Adventures in Debentures
Solutions to
Forward Contracts
1.
Part a.
0 r 12
= 20 r02 0 r01 = (2 7.1531%) 6.1875% = 8.1187%.
Thus, the forward price = 1,000 e1.081187 = 922.02.
Part b.
A synthetic alternative to this fo