You are an internal auditor in a fund management company. You have been asked to verify the valuation of the two bonds below. To do this, you researched to find the YTMs of similar bonds. The summary of your findings are in the box on the bottom right. Q1 What is the value of Bond B implied by the YTM found from your market research? Q2 What is the value of Bond A implied by the YTM found from your market research? Q3 What is the Duration of Bond A? 4.755680835 Q4 What is the Duration of a portfolio made up only of Bond A and Bond B? Q5 If a market price of $2,100,000 is observed in a trade on Bond A, what YTM is implied for Bond A? Q6 A year ago you signed a contract where you obligated yourself to give away a bond with a face value of 2M. Between Bond A and Bond B, which would you give away to satisfy your obligation? (This is just an easy question; we'll build on this later.) Bond A Field Value Detail Face value: $2,000,000 Coupon: 2.25% p.a. payable semiannually Repayment: Bullet at maturity Maturity: 5 Years Rating: AA Standard and Poors Research Rating AAA | AAA AAA AA | AA Bond B Field Value Detail Face value: $2,000,000 Coupon: Zero Repayment: Bullet at maturity Maturity: 7 Years Rating: A Standard and Poors Term Average Observed YTM 1 1.20% 3 1.82% 5 2.15% 7 2.84% 1 1.22% 3 2.06% 5 2.43% 7 2.85% 1 1.36% 3 2.30% 5 2.71% 7 2.86% A A A A You are an internal auditor in a fund management company. You have been asked to verify the valuation of the two bonds below. To do this, you researched to find the YTMs of similar bonds. The summary of your findings are in the box on the bottom right. Q1 What is the value of Bond B implied by the YTM found from your market research? Q2 What is the value of Bond A implied by the YTM found from your market research? Q3 What is the Duration of Bond A? 4.755680835 Q4 What is the Duration of a portfolio made up only of Bond A and Bond B? Q5 If a market price of $2,100,000 is observed in a trade on Bond A, what YTM is implied for Bond A? Q6 A year ago you signed a contract where you obligated yourself to give away a bond with a face value of 2M. Between Bond A and Bond B, which would you give away to satisfy your obligation? (This is just an easy question; we'll build on this later.) Bond A Field Value Detail Face value: $2,000,000 Coupon: 2.25% p.a. payable semiannually Repayment: Bullet at maturity Maturity: 5 Years Rating: AA Standard and Poors Research Rating AAA | AAA AAA AA | AA Bond B Field Value Detail Face value: $2,000,000 Coupon: Zero Repayment: Bullet at maturity Maturity: 7 Years Rating: A Standard and Poors Term Average Observed YTM 1 1.20% 3 1.82% 5 2.15% 7 2.84% 1 1.22% 3 2.06% 5 2.43% 7 2.85% 1 1.36% 3 2.30% 5 2.71% 7 2.86% A A A A
