Scribd
Upload
16 views11 pages

8th Sep FM

Uploaded by

Rohit Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
16 views11 pages

8th Sep FM

Uploaded by

Rohit Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 11

Calculate the present value of a $1,000 zero-coupon bound with 5 years to maturity if the required annual interest rate is 6%

Interest 6%

Time DCF CF
1 747.25817 1000

2 Cashflows: One is Coupon and other is the Face Value


This is zero coupon bond menas the Coupon is Zero
annual interest rate is 6%
A Lottery claims its grand prize is $ 10 million, payable over 20 years at $ 500,000 per year. If the first payment is made immed

Annuity 500,000
DR 6%

6079058
Time Cashflow DCF
0 500,000 500000
1 500,000 471698.1
2 500,000 444998.2
3 500,000 419809.6
4 500,000 396046.8
5 500,000 373629.1
6 500,000 352480.3
7 500,000 332528.6
8 500,000 313706.2
9 500,000 295949.2
10 500,000 279197.4
11 500,000 263393.8
12 500,000 248484.7
13 500,000 234419.5
14 500,000 221150.5
15 500,000 208632.5
16 500,000 196823.1
17 500,000 185682.2
18 500,000 175171.9
19 500,000 165256.5
e first payment is made immediately, what is the grand prize really worth? Use a discount rate of 6%
Consider a bond with a 7% annual coupon and a face value of $1,000. Complete the following table:-
Coupon Rate 7%
FV 1000
i 5%
Coupon Amount 70
Years to Maturity Discount Rate Current Price
3 5% ₹ 1,054.46 ₹864.03
3 7% ₹ 1,000.00
6 7% ₹ 1,000.00
9 5% ₹ 1,142.16
9 9% ₹ 880.10
What relationship do you observe between yield to maturity and the current market value?

807.324858440632 934.5794393
762.895212047525
622.749741884591
602.438239455885
430.306335996543

Coupon 7%
FV 1000
i 5%
Bond Price 1 1054.4649606 ₹ 1,054.464961
Time CF DCF
1 70 66.6666666667
2 70 63.4920634921
3 1070 924.306230429
Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and ha

Par Value 1000 Par Value 1000


Coupon Rate 10% Coupon Rate 10%
Price 1150 Price 1150
n 8 n 8
YTM 7.44% YTM 10.00%
1000
Time CF Time CF DCF
0 -1150
1 100 1 100 90.90909
2 100 2 100 82.64463
3 100 3 100 75.13148
4 100 4 100 68.30135
5 100 5 100 62.09213
6 100 6 100 56.44739
7 100 7 100 51.31581
8 1100 8 1100 513.1581

7.445%
ently selling for $1,150 and has 8 years to maturity. What is the bond's yield to maturity?

Coupon Ra 10%
Price 1150
n 8
YTM 7.44%
1150
Time CF DCF

1 100 93.07127
2 100 86.62262
3 100 80.62077
4 100 75.03478
5 100 69.83583
6 100 64.99709
7 100 60.49362
8 1100 619.324
A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell

Par Value 1000


Coupon Rate 7%
Price 871.65
n 10
Selling Price 880.1

C(t) 70
P(t+1) 880.1
Rate of Return 9.00%
pute your rate of return if you sell the bond next year for $880.10
Calculate the duration of a $1,000. 6% coupon bond with three years to maturity. Assume that all market interst rates are 7%.

Face Value 1000


Coupon 6%
n 3
i 7%
time weighted DCF
Time CF DCF t.DCF t.DCF/Price
1 60 56.07477 56.07477 0.05758601
2 60 52.40632 104.8126 0.10763739
3 1060 865.2757 2595.827 2.6657859

PRICE 973.7568 2.83100929 Years


Duration ^

Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the dura
i 6.75%
Change (Delta i) -0.25%
Time CF DCF
Expected Price Change 6.44 1 60 56.20609
Actual Price Change 6.47 2 60 52.65207
3 1060 871.3692

980.2274
rket interst rates are 7%.

p to 6.75% using the duration approximation. Calculate the actual price change using discounted cash flow.

You might also like