A 5-year. 5% semiannual coupon Payment bond Is priced at lO4 967. Your boss wish

Question

A 5-year. 5% semiannual coupon Payment bond Is priced at lO4 967. Your boss wishes to comparc its vield to a bond paying monthly interest. He asks you to convert the vieid of this bond to a monthly periodicity, on a converted basis the YTM is closest ot: on a converted basis the YTM is closest to. 3.83% 3.87% 4.95% 7.67% 18) The provision that provides bondholders the right to sell the bond back to tbe issuer at a predetermined price prior to the bond's maturity date is referred to as: A put provision A call provision An original issue discount provision A conversion provision)) You just bought $1million in face value of a 10 Year, 2% semiannual bond from ford.the us Treasury benchmark for 10 year bonds has a YTM of 2% and you bought this bond at 100b its Treasury benchmark. If rates go up by 50bps and the yield premium for this bond rem-unchanged (i.e. still 100bps), what is your expect capital loss on your investment? $0

Explanation / Answer

Answer 17)

Semi Annual YTM = rate(nper,pmt,pv,fv)

nper = 5*2 = 10

pmt = 5%*1000*1/2 = 25

pv= 104.967%*1000 = 1049.67

fv = 1000

Semi Annual YTM = rate(10,25,-1049.67,1000)

Semi Annual YTM = 1.9485%

Monthly converted YTM = (1+1.9485%)^(1/6)-1

Monthly converted YTM = 0.3221%

Annual YTM compounded monthly = 0.3221*12

Annual YTM compounded monthly = 3.87%

Answer

b) 3.87%

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