Dr Nick

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About Dr Nick

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Teaching Since: May 2017
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  • MBA (IT), PHD
    Kaplan University
    Apr-2009 - Mar-2014

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  • Professor
    University of Santo Tomas
    Aug-2006 - Present

Category > Business & Finance Posted 15 Jun 2017 My Price 13.00

what a bond is, in particular why it is a fixed income security

 

Suppose that the borrowing rate that your client faces is 2%. Assume that the S&P500 index has an

expected return of 3% and standard deviation of 15%, that the risk-free rate is 1%.

(a) Explain what a bond is, in particular why it is a fixed income security. Explain how to price

them.

(b) Explain why zero-coupon bonds are considered more risky than coupon bonds.

6(c) In the following figure, draw the change in bond prices when the interest rate changes, for the

following bonds (clearly mark which graph refers to which bond):

• Bond A: Copuon rate 12%, Maturity 5 years, initial yield-to-maturity: 10%

• Bond B: Copuon rate 12%, Maturity 30 years, initial yield-to-maturity: 10%

• Bond C: Copuon rate 3%, Maturity 30 years, initial yield-to-maturity: 10%

• Bond D: Copuon rate 3%, Maturity 30 years, initial yield-to-maturity: 6%

Answers

Dr Nick
(4)
Status NEW Posted 15 Jun 2017 08:06 AM My Price 13.00

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