Question
1. Ten years ago, an investor bought a 15 year corporate bond (in 2012) with a yield to maturity of 6%. It had a 5%
1. Ten years ago, an investor bought a 15 year corporate bond (in 2012) with a yield to maturity of 6%. It had a 5% coupon and a $100 par value. Ten years ago, the 15 year Treasury was selling for $95 with a 5% coupon and a par value of $100.
What was the price of the corporate bond at the time it was bought?
What was the spread in basis points at the time it was bought?
Create a data table with the price of the corporate bond as the output. The column input is the coupon, start at $2 and go to $6 in increments of $1. How is the price related to the coupon?
Today (ten years from when it was bought) the investor is thinking of selling the bond but wants to make an annual return of 5%, what must be the price today in order for the investor to make the 5% return?
What does the yield to maturity have to be today in order for the investor to have an annual return of 5%?
Given that yield to maturity, what had to happen to the risk of the bond?
If a Japanese investor bought the bond ten years ago (use the data below) and sold it today, what would be the annual return for the Japanese investor?
Did the exchange rate help or hurt? Explain.
Date | JPY per USD | |
2011 | 77.7967 |
|
2012 | 83.7905 |
|
2013 | 103.4600 |
|
2014 | 119.3233 |
|
2015 | 121.6350 |
|
2016 | 115.9981 |
|
2017 | 112.9405 |
|
2018 | 112.1994 |
|
2019 | 109.1010 |
|
2020 | 103.7952 |
|
2021 | 113.8329 |
|
2022 | 115.4650 |
|
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