W-Fixed Income Securities
Name: 李耀倫
Student No: 0809853A-B011-2996
Fixed Income Securities 1
7. A pension fund manager knows that the following liabilities must be satisfied:
Years from Now Liability (in millions)
|Years From Now |Liability (in millions) |
|1 |$2.0 |
|2 |$3.0 |
|3 |$5.4 |
|4 |$5.8 |
Suppose that the pension fund manager wants to invest a sum of money that will satisfy this liability stream. Assuming that any amount that can be invested today can earn an annual interest rate of 7.6%, how much must be invested today to satisfy this liability stream?
One’s liability:
PV0 = 2,000,000 * [1 / (1 + 7.6%) ^1] = 2,000,000 * 0.9294 = $ 1,858,736.06
Two’s liability:
PV0 = 3,000,000 * [1 / (1 +7.6%) ^2] = 3,000,000 * 0.8637 = $ 2,591,174.8
Three’s liability:
PV0 = 5,400,000 * [1/ (1 + 7.6%) ^3] = 5,400,000 * 0.8027 = $ 4,334,679.04
Four’s liability:
PV0 = 5,800,000 * [1 / (1 + 7.6%) ^4] = 5,800,000 * 0.7460 = $ 4,326,920.42
Answer: 1,858,736.06 + 2,591,174.8 + 4,326,920.42 + 4,326,920.42 = $ 13,111,510.32
Name: 李耀倫 Student No: 0809853A-B011-2996 Fixed Income Securities 1
8. Calculate for each of the following bonds the price per $1,000 of par value assuming semiannual coupon payments and explain the price-yield relationship based on your results.
|Bond |Coupon Rate |Years to Maturity |Required yield |
|A
Student No: 0809853A-B011-2996
Fixed Income Securities 1
7. A pension fund manager knows that the following liabilities must be satisfied:
Years from Now Liability (in millions)
|Years From Now |Liability (in millions) |
|1 |$2.0 |
|2 |$3.0 |
|3 |$5.4 |
|4 |$5.8 |
Suppose that the pension fund manager wants to invest a sum of money that will satisfy this liability stream. Assuming that any amount that can be invested today can earn an annual interest rate of 7.6%, how much must be invested today to satisfy this liability stream?
One’s liability:
PV0 = 2,000,000 * [1 / (1 + 7.6%) ^1] = 2,000,000 * 0.9294 = $ 1,858,736.06
Two’s liability:
PV0 = 3,000,000 * [1 / (1 +7.6%) ^2] = 3,000,000 * 0.8637 = $ 2,591,174.8
Three’s liability:
PV0 = 5,400,000 * [1/ (1 + 7.6%) ^3] = 5,400,000 * 0.8027 = $ 4,334,679.04
Four’s liability:
PV0 = 5,800,000 * [1 / (1 + 7.6%) ^4] = 5,800,000 * 0.7460 = $ 4,326,920.42
Answer: 1,858,736.06 + 2,591,174.8 + 4,326,920.42 + 4,326,920.42 = $ 13,111,510.32
Name: 李耀倫 Student No: 0809853A-B011-2996 Fixed Income Securities 1
8. Calculate for each of the following bonds the price per $1,000 of par value assuming semiannual coupon payments and explain the price-yield relationship based on your results.
|Bond |Coupon Rate |Years to Maturity |Required yield |
|A