Assignment
A callable bond has 12 years to maturity, bears a 6.4% coupon rate, pays coupons semiannually, and is currently priced at $105.78. The bond is first callable at the end of seven years from now at a call price of $103.20.
1.) Compute the bond's yield to maturity (YTM).
2.) Compute the bond's yield to first call (YTFC).
3.) A Treasury bill with 85 days remaining until maturity is quoted as having a yield of 4.4% on a discount basis. What is the price of this Treasury bill, per $1 par value?
Consider the following yield curve for the following off-the-run Treasury bonds (that pay semiannual coupons):
|
Maturity
|
YTM
|
Coupon
|
Price (% of par)
|
|
6 months
|
3%
|
3%
|
100
|
|
1 year
|
4%
|
4%
|
100
|
|
18 months
|
5%
|
5%
|
100
|
4.) What is the 1-year spot rate?
5.) What is the 18-month spot rate?
Use the following information to answer questions 6-7.
Suppose you are trying to assign a value to two illiquid, fixed-rate, semiannual-pay corporate bonds, both with par values of $100:
Ô Bond X, with a 5% coupon rate and a maturity of 6 years
Ô Bond Y, with a 6% coupon rate and a maturity of 7 years
You decide to use matrix pricing to estimate the prices of the two bonds. Consequently, you gather the following information on four bonds of similar credit risk:
Bond 1, with a 6% coupon rate and a maturity of 5 years, trading for 102% of par value Bond 2, with a 8% coupon rate and a maturity of 5 years, trading for 111% of par value Bond 3, with a 5% coupon rate and a maturity of 8 years, trading at 93% of par value Bond 4, with a 7% coupon rate and a maturity of 8 years, trading at 105% of par value
6.) What is the estimated value of Bond X using matrix pricing?
7.) What is the estimated value of Bond Y using matrix pricing?
Use the following information to answer question 8.
A floating rate note (FRN) with exactly three years remaining until maturity offers a coupon rate equal to 3-month Libor + 0.40% (the quoted margin) on a quarterly basis. Currently, 3-month Libor is 1.60%. The FRN is currently priced in the market at a price of 98 (% of par value).
8.) What discount margin is reflected in the FRN's price?