The option is currently a.) In-the-money b.) At-the-money c.) Out-the-money 2.) In/At/Out- the money by _____ pesos. 3.) What is the Intrinsic Value
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1.) The option is currently
a.) In-the-money
b.) At-the-money
c.) Out-the-money
2.) In/At/Out- the money by _____ pesos.
3.) What is the Intrinsic Value
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Solved in 2 steps
- INV3 P1b Bond # 1 2 3 4 1 - year strip bond 2- year strip bond 2-year 6% coupon bond 2-year 7% coupon bond Purchase Price for the bond) 950 ? ? ? Year 1 cash flow 1000 0 60 70 Year 2 cash flow 0 1000 1060 1070 Yield to Maturity ? ? 5.50% ? If the expectations theory of the yield curve is correct, what is the market expectation of the price that bond #3 will sell for next year?Bond A B Liquidity High High Low D 8 Low Based on the table above, what is the default risk premium? O 0.5% O 1% 01.5% с Maturity 2 8 2 Default Risk Low High High High YTM 3,50% 5.00% 5.50% 18.00%Bond Maturity Liquidity Default Risk YTM A2 High Low 3.50% B 2 High High 4.50% C8 High Low 5.50% D8 Low High 7.00% Based on the table above, what is the liquidity risk premium? 0.5% 1% 2%
- INV3 1c If the liquidity preference theory is correct and you believe that the liquidity premium is 1 percent, what is the market expectation of the price that bond #4 will sell for next year? Bond # 1 2 3 4 1 - year strip bond 2- year strip bond 2-year 6% coupon bond 2-year 7% coupon bond Purchase Price for the bond) 950 907.03 1,009.23 1,027.69 Year 1 cash flow 1000 0 60 70 Year 2 cash flow 0 1000 1060 1070 Yield to Maturity 5% 5% 5.50% 5.50%Example 3: 3 securities, 3 states price a 100 100 0 state b 50 100 0 C / Stock 90 Bond 60 option 20 Does there exist arbitrage opportunity? 150 100 50INV3 P1a Bond # 1 2 3 4 1 - year strip bond 2- year strip bond 2-year 6% coupon bond 2-year 7% coupon bond Purchase Price for the bond) 950 ? ? ? Year 1 cash flow 1000 0 60 70 Year 2 cash flow 0 1000 1060 1070 Yield to Maturity ? ? 5.50% ? Fill in the missing pieces from the following table using the Law of One Price. Assume all these bonds have the same risk, the yield curve is flat, and any coupon payments are paid annually.
- 2 3 Į Using Excel functions to compute duration Bond duration Settlement date Maturity date Coupon rate (decimal) YTM Coupons per year Macaulay duration Modified duration 7/20/2020 7/20/2023 8.00% 10.00% 1 % =DURATION =MDURATIONAcme Chemical, Inc. is a major manufacturer of chemical products for the agricultural ndustry, including pesticides, herbicides and other compounds. Due to a number of law suits elated to toxic wastes, Acme Chemical has recently experienced a market re-evaluation of its common stock. The firm also has a bond issue outstanding with 10 years to maturity and an annual coupon rate of 5 percent, with interest paid semi annually. The required nominal market annual interest rate on this bond has now risen to 10 percent due to the high risk level associated vith this firm. The bonds have a par or face value of $1,000. 1. Label each of the variables that you would use to determine the value of this bond in the market today: N (time periods until maturity) PMT (periodic interest payment) I per (periodic market interest rate) EV (future value to be received when the bond matures) = 2. Based on the variables that you have identified in Question #1, what is the market value. today (the present…Bond Current Price Modified Duration A 895.57 4.12257 B 625.95 7.3523 C 884.17 4.04855 Interest rate has increase by 10 basis point calculate by how much the portfolio value will change.
- Explain why y0u disagree 0r agree with the f0ll0wing statements. The answer sh0uld n0t be m0re than 3 sentences (with reference of google links) Step 1 Define Treasusy BondS & Corporate Bonds Step 2 Difference between annuity due and ordinary annuity Step 3 Treasury b0nds are riskier than c0rp0rate b0nds. All 0ther things held c0nstant; the future value 0f an 0rdinary annuity is always having a higher future value than annuity due. All 0ther things held c0nstant, the price 0r interest rate risk 0f sh0rt-term b0nd is always l0wer than l0ng-term b0ndSpot and Forward rates Bond Bond A Bond B Face Value Coupon 100 100 0% 0% Maturity 1 3 Price 98 90 Calculate the annual forward rate betwenn the years 1 and 312345 A B C This first table describes prevailing market interest rates. Market Data Yield 0.05 6 7 Required: 8 D E F G H 9 Using the yield above and the information contained in the table below, please calculate the price and duration of the bond as well as all necessary steps. 10 (Use cells A5 to B5 from the given information to complete this question.) 11 12 Time Until Payment Payment Discounted Payment Weight Time x Weight 13 1.00 $30.00 14 2.00 $30.00 15 3.00 $30.00 16 4.00 $1,030.00 17 Price: 18 Duration