08 Jun Question 1. Bond A is a discount bond with face value of $100 and ma
Question
1.
Bond A is a discount bond with face value of $100 and maturity of 10 years.
Suppose the yield to maturity is currently 4%.
Over the course of the year, prevailing yields are expected to change according to the table below:
Next year’s yield
Probability
3%
0.33
4%
0.34
5%
0.33
–Calculate the expected return of bond A.
—Calculate the standard deviation for bond A
Hints: Discount bonds pay no coupon. Next year, the maturity on bond A will be 9 years.
Answer as a percentage, DO NOT enter a % sign. Round to two decimal places.
2.
Bond B is a discount bond with face value of $100 and maturity of 2 years.
Suppose the yield to maturity is currently 4%.
Over the course of the year, prevailing yields are expected to change according to the table below:
Next year’s yield
Probability
3%
0.33
4%
0.34
5%
0.33
Calculate the expected return of bond B
Calculate the standard deviation of Bond B
Hints: Discount bonds pay no coupon. Next year, the maturity on bond B will be 1 year.
Answer as a percentage, DO NOT enter a % sign. Round to two decimal places.
Bond A is a discount bond with face value of $100 and maturity of 10 years.
Bond B is a discount bond with face value of $100 and maturity of 2 years.
Suppose the yield to maturity is currently 4%.
Over the course of the year, prevailing yields are expected to change according to the table below:
Next year’s yield
Probability
3%
0.33
4%
0.34
5%
0.33
Calculate the expected return of bond B
Hints: Discount bonds pay no coupon. Next year, the maturity on bond B will be 1 year.
Answer as a percentage, DO NOT enter a % sign. Round to two decimal places.
3.
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