answer questions 1 FINA 46000-Assignment # 1 September, 2018 Answer questions on
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answer questions 1
FINA 46000-Assignment # 1 September, 2018 Answer questions on a separate piece of paper. Show your work. 1. A recent listing for a Treasury bill in the Wall Street Journal gave an Asked Discount Yield of 2.25%. Its maturity was 120 days. a. What is the T-bill's coupon (bond) equivalent yield? b. What price would a bank pay for this T-bill? c. What is the effective annual yield for the T-bill? d. If the Bid Discount Yield was 2.40%, what was the dealer's "spread" on the bill (in $)? 2. An investor just purchased a 182 day maturity Treasury bill for 98.625. a. What is the coupon equivalent yield? b. What is the bank discount yield? 3, A Treasury note with a maturity of eight years and a coupon interest rate of 4.50% was quoted at a price of 98. What is this T-note's yield to maturity? the bond's yield to maturity? you require a yield to rnaturity of 7% on similar risk bonds, what is the value price) ofthis 4. An IBM zero coupon bond with a maturity in September, 2026, has a price of $3.5 (percent). What is 5. An Exxon bond (par value-100) has a maturity of 15 years and a coupon interest rate of 6.3%. If bond? 6, A Citigroup zero coupon bond has a maturity ofsix years and a yield of 7% . Interest rates are expected to increase by 1.25%. Based on duration what price change do you expect for this bond? 7. An ATT bond (100 par value) which matures in exactly three years (September, 2021) has a coupon of 6.8%. The price of the bond is 96.8547. Your required rate of return is 8%. a. What is this bond's modified duration? b. If you expect yields to decrease by 1% (100 basis points), what is the approximate price change expected on this ATT bond? c. Compute the actual price change.Explanation / Answer
a) Bond Equivalent Yield Discount Yield*2 2.25*2 4.50% b) Let the price be $100 Effective Price 100/(1+0.0225)^0.25 $ 99.45 c) Effective Annual Yield (1+Discount Yield)^4 -1 0.093083 9.31% d) Spread New Yield - Old Yield 2.4%-2.25% 0.15%
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