Q5) Answer the following questions that relate to bonds

Subject:BusinessPrice:3.86 Bought9

Share With

Q5) Answer the following questions that relate to bonds.

-A 2-year zero-coupon bond is selling for $890.00. What is the yield to maturity of this bond?

-The price of a 1-year zero coupon bond is $931.97. What is the yield to maturity of this bond?

-Calculate the forward rate for the second year.

-How can you construct a synthetic one-year forward loan of $ 1'000 (you are agreeing now to loan in one year)? State the strategy and show the corresponding cash flows. Assume that you can purchase and sell fractional portions of bonds. Show all calculations and discuss the meaning of the transactions.

Q6. (i) Discuss marking to market and margin accounts in the futures market.

      (ii) In an increasingly globalized investment environment, comparability problems become even greater. Discuss some of the problems for the investor who wishes to have an internationally diversified portfolio

(iii) Discuss rate anticipation swaps as a bond portfolio management strategy

(iv) Discuss contingent immunization. Is this form of bond portfolio management strategy an active, passive, or combination of both, strategy?

(v) (1.5 p) Although the expectations of increases in future interest rates can result in an upward sloping yield curve; an upward sloping yield curve does not in and of itself imply the expectations of higher future interest rates. Explain.