Question
Question 1. a) Betty and Bob buy 3 bonds. The portfolio is as per: they pay $80 for a 6-month ZCB with $100 redemption value;
Question 1.
a) Betty and Bob buy 3 bonds. The portfolio is as per:
they pay $80 for a 6-month ZCB with $100 redemption value;
they pay $94 for a 1- year ZCB with $100 redemption value;
they pay $100 for a 1-year coupon bond with a coupon rate of 8% per annum payable semiannually and a redemption value of $100.
Use the Cash Flow Method and algebra to find the portfolio yield to maturity.
b) Find the yield to maturity for each individual bond. Be sure to justify your answers using algebra or well-known rules. Now use The Weighted Average Method to find the yield to maturity of the portfolio. Compare the results in parts a. and b.
- Cash Flow Method Yield _______b. Weighted average Yield___________
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Professionals Handbook Of Financial Risk Management
Authors: Lev Borodovsky, Marc Lore
1st Edition
0750641118, 978-0750641111
