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 )
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 (301-405-2256)
Office: VMH 4429, hunal@rhsmith.umd.edu
Teaching Assistant: "Xingzhou (R
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 T-bill can be calculated
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
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
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
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
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