Please show the steps as I am unable to get the answer for this question. Completed the rest this is the only one I have not been able to complete.
Abacus Inc. has asked you price a 5 year bullet bond issue for them, with Price, Yield to Maturity and Modified Duration. There are no comparable existing issues in the secondary market either by Abacus or a competitor and so you will need to price the issue from scratch.
You have the following set of US Treasury bond data and consultations with your Banks Equity Analyst and Debt Analyst suggest that a Z-spread for Abacus of 200 bps over Treasuries and a coupon rate of 6.5% should be appropriate to attract investors.
US Treasury Notes Coupon Yield to Maturity Zero coupon rate
1 Year 3.25% 3% 3%
2 Year 3.80% 3.25%
3 Year 4.5% 3.5%
4 Year 5% 4%
5 Year 6% 4.5%
You can assume that coupon payments are annual and that you are pricing on a coupon day (no accrued interest) and you may ignore basis conventions.
You should make your process and methodology clear with explanations at each stage.
Assignment hint: You will need to use the T-Note data to bootstrap a zero coupon treasury curve and apply the Z-spread to price the Abacus bond. You might find it easier to use the PV and RATE functions in Excel rather than PRICE and YIELD (but both will work).
Solution Summary
Price, Yield to Maturity and Modified Duration of a Bond Issue using Excel worksheet functions.
... B have higher durations than two of the corresponding bonds in portfolio A. ... Coupon rate= 0% YTM= 10 ... Term to Price maturity (years) 8 $466.51 9 $424.10 10 $385.54 ...
... Change in bond price = - modified duration * Change in YTM* Initial Bond... to do the regular present value calculations to find the bond's new price at its ...
...Duration /( 1 + y/n), where y = yield to maturity and n ... b) Assuming the bond's YTM goes from 10 percent to ... percent, calculate an estimate of the price change. ...
... M is the bond maturity (in years), and YTM is the yield to maturity C= 8% YTM= 7% M= 100 years Plugging in the values: Duration= 15.2559 years. Price of bond. ...
... value= 721.57 =0.721574*1000 Total= $983.62 =Price of bond. ... is close to the required selling price of $988.53 ... Alternatively, 9% is close to YTM of 8.50% Thus it ...
... A bond with a coupon rate of 7% sells at a yield to maturity of 8%. If the bond matures in 13 ... The bond price is $920.96 coupon payment 70 YTM 8% Number ...
... worthless as stock price is less than strike price at the ... te changes is an investment of ity, T, of Bond B? lay's ... and YTM is the yield to maturity, n is the. ...