Question
Problem 2 (20 points): Evaluate the following pure-yield pickup swap: You currently hold a 20-yearm AA-rated, 9% coupon rate bond with yield to maturity of
Problem 2 (20 points): Evaluate the following pure-yield pickup swap: You currently hold a 20-yearm AA-rated, 9% coupon rate bond with yield to maturity of 11.0%. As a swap candidate, you are considering a 20-yearm AA-rated, 11% coupon rate bond with yield to maturity of 11.5%, assume reinvestment rate is 11.5% and coupon are paid semi-annually, please fill out the table below and you must show (explain) clearly how numbers in the table are obtained.
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| 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 point in one year |
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Finance And Control For Construction
Authors: Chris March
1st Edition
0415371155, 978-0415371155
