教程问题练习mgt6077 tutorial 8.pdfVIP

Tutorial8

Question1(Practice)

Abondwith1year-to-maturityhasan18percentcouponandsellsfor£1,036.16

(a)Whatisthebond’syield-to-maturity?

(b)Supposeyouinvested£1,036.16inanaccountthatoffersthesameyieldasthatcalculatedin

part(a).Howmuchwouldyouhave1yearfromtoday?

(c)Reconsiderthebond.Ifthecouponreceived6monthsfromtodayisreinvestedtoearnthe

yield-to-maturity,howmuchwillyouhave1yearfromtoday?Whatifthecouponearns

nothing(isnotreinvested)?Whatifthecouponisreinvestedatarateof16percentperyear

(expressedasabondequivalentrate)?

(d)Summarizeyourresults.Underwhatcircumstanceswillaninvestor’srealizedyieldbethe

sameasthebond’syield-to-maturity?

Question2(Practice)

Assumethattheyieldcurveforthezero-couponbondswithvaryingmaturitiesisgivenasfollows:

TimetoMaturityYield-to-Maturity

19percent

210percent

311percent

412percent

Bondsareassumedtobedefault-freeandhaveaparvalueof£1,000respectivelyandtheunbiased

expectationshypothesisofthetermstructureiscorrect.

(a)Determinethemarket’pectationoftheyield-to-maturityfora3-yearzerocouponbonda

year.

(b)Supposeaninvestorbuysa4-yearzerocouponbondandsellsitayearlater,determinethe

market’pectationoftheyield-to-maturityforthisbond.Basedontheyield-to-maturityas

perthemarket’pectation,calculatethepriceofthebond.Doyouexpectthepriceofthe4-