Evaluate the following substitution swap: You currently hold a 25-year, 9.0 percent coupon bond priced to yield 10.5 percent.
As a swap candidate, you are considering a 25-year, AA-rated, 9.0 percent coupon bond priced to yield 10.75 percent.
(Assume a one-year work-out period and reinvestment at 10.5 percent.)
Original par value of bond was $1000
Current Bond Candidate Bond
Dollar investment _________ _____________
Coupon ________ ___________
i on one coupon __________ __________
Principal value at year end _______ _________
Total accrued _________ ________
Realized compound yield ________ ___________
Value of swap:______ basis points in one year