10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT? a. If the yield to maturity remains constant‚ the bond’s price one year from now will be higher than its current price. b. The bond is selling below its par value. c. The bond is selling at a discount. d. If the yield to maturity remains constant‚ the bond’s price one year from now will be lower than its current price. e. The bond’s current yield is greater than 9%. D Tucker Corporation
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Financial Markets – Focus Points Since this is a very extensive course I have compiled a list of the most important subjects‚ those which you should place the greatest emphasis on when studying for the final exam. Please note that this is not an exhaustive list and the final exam may include questions based on topics not directly mentioned below. This list should supplement the questions/problems from the practical sessions – which you should study carefully. Do not get intimidated by the number
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default risk premium table in the text. What yield would you predict for each of these two investments? Treasury Bond Risk-free rate = 4.00% Maturity: Expected inflation: Expected inflation: Expected inflation: 12 for the next for the next for the next Inflation premium = 2 years = 4 years = 6 years = 12 ((G17*D17)+(G18*D18)+(G19*D19))/D20 3.33% Maturity risk premium = 1.1% 0.1*(C16-1)% 12-year Treasury yield= 2% 3% 4% 8.43% 7-year corporate
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Chapter 1 Introduction to Capital Market 1. Capital Market Capital markets are financial markets for the buying and selling of long-term debt- or equity-backed securities over one year is traded. Security includes- shares‚ debentures‚ bonds etc. A key division within the capital markets is between the primary markets and secondary markets. In primary markets‚ new stock or bond issues are sold to investors‚ often via a mechanism known as underwriting. The main entities seeking to raise
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method for extracting market risk factors from observed data. This approach‚ which is informationally efficient‚ quantifies the risk associated with portfolios using three principal factors that affect yield curves. Due to the orthogonal nature of the factors‚ correlation and covariance between the yields do not have to be explored‚ simplifying the calculation of VaR for the portfolios. Results of this paper indicate that the PC VaR outturn for the Jamaican banking system is higher relative to both parametric
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22 3. The following two quotes are from the website for the FTIF Franklin High Yield Fund dated December 31‚ 2009(http://www.franklintempleton.com.es/pdf/funds/fdata/0825_ksp_es.pdf): a. “Portfolio risk is controlled primarily through our extensive bottom-up‚ fundamental analysis process‚ as well as through security and industry diversification.” What does this mean? The statement refers to how FTIF Franklin High Yield Fund seeks to contain portfolio risk‚ which is to say how it seeks to lower the
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15‚ 2008 Abstract We derive a simple formula for calculating the CDS spread implied by the bond market price. Using no-arbitrage argument‚ the formula expresses the bond implied CDS spread as the sum of bond price‚ bond coupon and Libor zero curve weighted by risky annuities. We show that the bond implied CDS spread is consistent with the standard CDS pricing model if the survival probabilities and recovery are consistent with the bond price. 1. Introduction A CDS contract is an OTC transaction
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zero-coupon bond that matures on the coupon date. 3. How are spot‚ strip and coupon yield related? Treasury STRIPS convert each coupon and principal payment into a separate zero-coupon security. The Treasury yield curve is obtained from the prices of Treasury strips. Strips are essentially zero-coupon bonds which are traded for a variety of maturities. From the strip prices‚ you can directly obtain the yield curve. The spot rates are what are used to discount the future cash flows of bonds. Any
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Business 9203 Section 2 MANAGING FINANCIAL RESOURCES QUIZ June 2011 STUDENT NUMBER _____________________________ You have a maximum of 80 minutes for the quiz. Please provide your answers on this paper in the spaces provided and hand in your paper at the end of the quiz. Only short precise answers are required and you can use point form. The weight given to each question is indicated at the end of the question. The total possible marks are 70. The quiz is open book and you may feel
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Chapter 1: Bond Prices‚ Discount Factors and Arbitrage 1. Use this list of Treasury bond prices as of January 15‚ 2013 (which should be taken as the current date for all the questions below except for question 7) to derive the discount factors for cash flows to be received in 0.5‚ 1‚ 1.5 and 2 years. Bond Price 6.0s of 7/15/13 102-15+ 5.0s of 1/15/14 103-7 3/4 8.0s of 7/15/14 107-24 4.0s of 1/15/15 100-23 1/2 Answer: (a) To find d(0.5) The equation from the 6.0s of 15 July
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