Study Session 16: Fixed Income: Analysis of Risk
In reading #55 we are calculating carrying value of a bond.
I understand we are taking the future value of the bond at a future year, while adding the coupon/reinvestment income.
6% coupon, 3 year annual pay bond, bond purchased with YTM of 5, sold at end of year 2 with YTM of 5
Price at sale (at end of year 2, YTM = 5%)
N = 1, IY = 5, FV = 1000, PMT = 60, CPT PV = -1009.52
I would like to confirm the proper computation for periodicity. Upon doing some exercises, I just realized it is through algebra to get the value of APR in the formula of periodicity. I’ve been doing it through calculator by replacing the periods, but I didn’t get the exact answer. How do you do this periodicity?
Thank you so much!
I am wondering if there is a shortcut way to calculate bond prices based on spot rates using financial calculator. If it is possible, please teach me how to do it. I am using BA II Plus Texas.
Thank you so much!
I am wondering if the formula to get the present value for discount rates and add-on rates basis must be strictly followed and not opt to calculate the present value straight on the financial calculator.
I hope someone would respond here.
I’m confused while reading study session 16 page no. 106. While calculating the PV for a bond sold prior to maturity.
For e.g YTM=7%,N=3(held to maturity),Coupon rate=6%(annual), FV=1000, PV comes up to be=973.76
and when the same bond is having 2yr holding period instead of using N=2 they have done the calcualtion using N=1
Can some one help me with this.
To calculate the return impact of a change in yield spread, why is convexity taken as 1/2?
For a discount bond, duration first increases with longer maturity and then decreases over a range of relatively long maturities until it approacehs the duration of a perpetuity, which is (1+YTM) / YTM.
Can somebody please explain to me what that means exaclty?
So in this chapter it says that, an investor who holds a fixed rate bond to maturity will earn an annualized rate of return equal to the YTM of the bond when purchased. And this also has coupon payments reinvested. So my question is that, WHY do the coupon payments need to be reinvested for the bond return at maturity be equal to the YTM?
What does a flat yield curve mean? Does it mean it has a modified duration of zero?
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