Bond Marketing Strategies Question 1

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BOND MARKETING STRATEGIES 3

BondMarketing Strategies

Question1

AnnualizedYield (Fabozzi,and Markowitz, 2011, pp. 80-85).

N=number of periods

Corresponding1-year yield (Jegadeesh,and Tuckman, 2000, pp. 265-273).

ForwardRates (Jegadeesh,and Tuckman, 2000, pp. 265-273).

Calculations

Year

Bond price

Forward Rates (%)

1

$ 952,381

2

$ 898,473

3

$ 842,054

4

$ 786,232

Question2

M=3 years

Couponrate= 4% annually

Yieldto Maturity (YTM) = 6%

FaceValue (FV) = $ 1,000

A.Bond Price and Duration of Bond

BondPrice (Thismatter.com,2016).

Durationof Bond (Thismatter.com,2016).

N=number of cash flows= 3

T=time to maturity= 3 years

C=cash flow= $ 40

R=required yield (YTM) = 6%

M=maturity (par) value= $ 1,000

P=bond price= $ 946.55

b.Proportionate Change in Bond Price if Yield to Maturity (YTM)increases to 6.10% (Thismatter.com,2016).

D=duration= 2.77 years

References

Fabozzi,F. and Markowitz, H. (2011). Thetheory and practice of investment management.Hoboken, N.J.: John Wiley &amp Sons, pp. 80-85. Retrieved on 10thAugust 2016.

Jegadeesh,N. and Tuckman, B. (2000). Advancedfixed income valuation tools.New York: Wiley, pp. 265-273. Retrieved on 10thAugust 2016.

Thismatter.com(2016). Bonds:Duration and Complexity.Retrieved on 10thAugust 2016 fromhttp://www.thismatter.com/money/bonds/duration-convexity.html/

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