please answer question 2 and 3 and 4 FIN A46000-Assignment #1 September, 2018 An
ID: 2809549 • Letter: P
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please answer question 2 and 3 and 4
FIN A46000-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 S)? 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? 4. An IBM zero coupo n bond with a maturity in September, 2026, has a price of 53.5 (percent). What is the bond's yield to maturity? 5, An Exxon bond (par value 100) has a maturity of 15 years and a coupon interest rate of 6.3%. If you require a yield to maturity of 7% on similar risk bonds, what is the value (price) of this bond? 6, A Citigroup zero coupon bond has a maturity of six 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. Ifyou expect yields to decrease by i % (100 basis points), what is the approximate price c. Compute the actual price change. change expected on this ATT bond?Explanation / Answer
Answer 2:
Purchased Treasury bill at = 98.625
Maturity = 182 days
Coupon Equivalent yield (CEY) = (Interest amount Paid, Between Now and Maturity / Purchase Price) x (365 / Days to Maturity)
= (100 - 98.625) / 98.625 * (365 / 182)
= 2.796%
= 2.80% (rounded off to 2 decimal)
Bank Discount Yield = [(Face value - Issue Price) / Face Value] * (360 / Days to Maturity)
= [(100 - 98.625) /100] * (360/182)
= 2.71978%
= 2.72% (rounded off to 2 decimal)
Answer 3:
Treasury notes pay interest at fixed coupon rate and usually have face value of $1000.
Purchase of price of 98 = $1,000 * 98% = $980
Maturity period = 8 years
Semiannual periods = 8 * 2 = 16
Coupon rate = 4.5%
Semiannual Coupon amount = $1,000 * 4.5%/2 =$22.50
Using excel function RATE,
RATE (nper, pmt, pv ,fv , type)
RATE (32, 22.5,-980, 1000, 0)
=2.402%
Hence Yield to Maturity = 2.402% * 2
= 4.804%
= 4.80% (rounded off to two decimals)
Answer 4:
Zero discount bond :
Maturity in Sep 2026.
Maturity period (assuming issued in Sep 2018) = 8 years
Maturity value = 1000
Current/Issue price = 53.5% of maturity value = 53.5% * 1000 = 535
Zero discount bonds do not make any periodic coupon payments.
Using RATE function of Excel:
RATE (nper, pmt, pv ,fv , type)
RATE (8, 0, -535, 1000, 0)
= 8.1324%
= 8.13% (rounded off to two decimals)
Yield to maturity = 8.13%
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