You have decided to evaluate the following bonds to include in your portfolio: Bond 3 7/15/2020...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You have decided to evaluate the following bonds to include in your portfolio: Bond 3 7/15/2020 9/15/2050 Settlement Date Maturity Date Frequency Face Value Coupon Rate Required Return Bond 1 Bond 2 3/15/2020 9/1/2020 1/15/2030 7/1/2040 Call Premium % Call Date 4 2 $1,000 $1,000 6.00% 8.00% 5.00% 10.00% a) Determine the invoice (dirty) price using the PV function on the prior coupon date and compounding that PV forward, the accrued interest, and the quoted (clean) price of each bond. Find the quoted price as the difference between the invoice price minus the accrued interest and verify this result using the PRICE function. Also calculate the current yield. b) Determine the yield to call on these bonds if the time to first call and the call premium for each one of them are the following: Bond 1 2 $1,000 10.00% 11.00% 2.00% 7/15/2023 Bond 2 3.00% 9/1/2024 | 1/15/2025 Bond 3 4.00% c) Determine the duration and modified duration of these bonds. d) Create a scatterplot for Bond 2 that shows required return on the x-axis and bond price on the y-axis. Plot the actual bond price using the price function and the duration approximate price. Use a range of 6% to 14% for the x-axis. You have decided to evaluate the following bonds to include in your portfolio: Bond 3 7/15/2020 9/15/2050 Settlement Date Maturity Date Frequency Face Value Coupon Rate Required Return Bond 1 Bond 2 3/15/2020 9/1/2020 1/15/2030 7/1/2040 Call Premium % Call Date 4 2 $1,000 $1,000 6.00% 8.00% 5.00% 10.00% a) Determine the invoice (dirty) price using the PV function on the prior coupon date and compounding that PV forward, the accrued interest, and the quoted (clean) price of each bond. Find the quoted price as the difference between the invoice price minus the accrued interest and verify this result using the PRICE function. Also calculate the current yield. b) Determine the yield to call on these bonds if the time to first call and the call premium for each one of them are the following: Bond 1 2 $1,000 10.00% 11.00% 2.00% 7/15/2023 Bond 2 3.00% 9/1/2024 | 1/15/2025 Bond 3 4.00% c) Determine the duration and modified duration of these bonds. d) Create a scatterplot for Bond 2 that shows required return on the x-axis and bond price on the y-axis. Plot the actual bond price using the price function and the duration approximate price. Use a range of 6% to 14% for the x-axis.
Expert Answer:
Answer rating: 100% (QA)
To calculate the invoice dirty price quoted clean price and current yield of each bond we can use the PV function accrued interest calculation and the ... View the full answer
Related Book For
Financial Analysis with Microsoft Excel
ISBN: 978-1285432274
7th edition
Authors: Timothy R. Mayes, Todd M. Shank
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Kendall Corners Inc. recently reported net income of $4.8 million and depreciation of $600,000. What was its net cash flow? Assume it had no amortization expense. Enter your answer in dollars. For...
-
At the beginning of the year, Xul Ltd. had total assets of $720,000 and total liabilities of $420,000. Use this information to answer each of the following independent questions. (a) If Xul's total...
-
Locate the balance sheet, income statement, and statement of cash flows of Home Depot, Inc., in Appendix A of your text. Review those statements and then respond to the following for the year ended...
-
What is the difference between power and influence?
-
An incomplete subsidiary ledger of wire cable for May is as follows: a. Complete the materials issuances and balances for the wire cable subsidiary ledger under FIFO.b. Determine the balance of wire...
-
Using the following table, calculate the 90-day return of the U.S. investor if he invests in Canada. Spot rate of C$ $0.80 90-day forward rate of C$ $0.79 90-day Canadian interest rate 4% 90-day U.S....
-
Your client, Summerford, Inc., has a debt agreement with Valley City Bank that includes a number of restrictions and covenants. Violation of any restriction or covenant results in the entire amount...
-
what's the answer?
-
The metal niobium melts at a temperature of 2468 C and boils at 4742 C, whereas the metal gallium melts at a temperature of 30 C and boils at 2403 C. (a) Which metal will be more volatile at room...
-
11. Consider the following problem description: y vods adinol nolllzogm motavador (a) List and provide rationale for three design goals for the above system. Briefly discuss if any two of them are...
-
Question 12 of 15 This test: 15 point(s) possible This question: 1 point(s) possible Submit test There are two college entrance exams that are often taken by students, Exam A and Exam B. The...
-
The factory ledger of Diamond Corporation contains the following cost data for the year ended December 31, 2011: Inventories Opening Closing Raw materials P150,000 170,000 Work in...
-
Pharoah Ranch Inc, has been manufacturing its own finials for its curtain rods. The company is currently operating at 1 0 0 % of capacity, and variable manufacturing overhead is charged to production...
-
3 Cook int Fint ences Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. May 11 Sydney accepts delivery of $37,500 of merchandise it purchases for resale...
-
How does the organizational structure of an MNC influence its strategy implementation?
-
Income Statements for Xcel Energy from 2011 to 2013 appear below. a. Enter the data into your worksheet. Assume that Cost of Revenue and Operation and Maintenance costs are variable. Depreciation and...
-
A computer problem at Southglenn Photography Studios has resulted in incomplete financial statements. Management of the company has asked you to see if you can fill in the missing data. a. Recreate...
-
You are considering investing in the following securities and have developed the probability distributions for their returns over the next year. a. Calculate the expected return and standard...
-
Fogel Limited commenced trading as a carpet manufacturer on 1 November 1986. The accountant decided to produce a value added statement with the financial accounts for the year ended 31 October 1988....
-
In recent years several large listed companies have purchased their own ordinary shares. \section*{You are required to summarise} (a) the accounting requirements for a public listed company when it...
-
Capital plc carried on business in four product segments, namely aircraft design, hairdressing salons, import agencies and beauty products. The directors are now considering the dividend policy and...
Study smarter with the SolutionInn App