Sam Strother and Shawna Tibbs are vice-presidents of Mutual of Seattle Insurance Company and co-directors of the company

[answerhappygod]

Sam Strother And Shawna Tibbs Are Vice Presidents Of Mutual Of Seattle Insurance Company And Co Directors Of The Company 1 (72.66 KiB) Viewed 50 times

Sam Strother And Shawna Tibbs Are Vice Presidents Of Mutual Of Seattle Insurance Company And Co Directors Of The Company 2 (44.11 KiB) Viewed 50 times

Sam Strother And Shawna Tibbs Are Vice Presidents Of Mutual Of Seattle Insurance Company And Co Directors Of The Company 3 (81.21 KiB) Viewed 50 times

Sam Strother and Shawna Tibbs are vice-presidents of Mutual of Seattle Insurance Company and co-directors of the company's pension fund management division. A major new client, the Northwestern Municipal Alliance, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions. How is the value of a bond determined? What is the value of a 10-year, 51,000 par value bond with a 10 percent annual coupon it its required rate of return ("Going rate' or 'Market rate) 10 percent? Best practice is to organize the Inputs in one place Years to Mat: Coupon rate: Annus Par value Going rate, rd: This clearly documents the inputs being used and allows you to easily change the individual inputs. Value of bond Find the value aing the PV function. Be sure to insert a (- between the and PV to get a positive value for the table and chart Note that with the inputs in d. the value the Par Value. This is an unusual case when the market interest rate the coupon rate. The PV function can only be used if the payments are constant, but that is normally the case for bonds b. (1) What would be the value of the bond described in Part I just after it had been issued the expected Inflation rate rose by 3 percentage points, causing investors to require a 13 percent return? Would we now have a discount or a premium bond? We could simply go to the input data section shown above, change the value for from 10% to 17%. You can set up a datatable to show the band's value at a range of rates, ie. to show the band's sensitivity to changes in interest rates. This is done below. Make your version below of the datatable from the left w Bond Value Going rateri Bond we Yo make the datatable trattype the heading the type the rate you want to use model input in care in the left column (ther and table to righ In cel Morodered to Going rate, De who cel, et above the the call in which you want the first output value to ON 0.00 the e use the 7 who bond MAD Select the range of that contain your input 10% 0.00 135 the Theingut data come 20% . Date Table value for 2011 In the model with the of the table Interest Rate Sensitivity of a 10-Year Bond Borut Com route Care Inputs Outputs Make your version below of the interest rate sensitivity chart located at A50 E90 Hint: Highlight the two columns of numbers in your chart above. not the headings, and go to Insert. Scatter (XY) with Lines chart) 1 Put 21 here,
LLLLLLLL ITITIT
1. Suppose a 10-year, 10 percent, semiannual coupon bond with a par value of $1,000 is currently selling for 51.135.90. producing a nominal yield to maturity of percent. However, the bond can be called after 5 years for a price of $1,050 11.) What is the bond's nominal (annual) yield to call (YTC)? Use ERATE function to solve Number of semiannual periods to call: Seminannual coupon rate: Seminannual Pmt: Current price: Call price - FV Par value Semiannual Rate YTC Annual nominal rate 0.00% 10 Yt. versus 1 YE (2.) If you bought this bond, do you 4,000 3.000 g. What is interest rate for price) risk See the result by changing the rate in 2.000 17 2 TO 10-Yr Maturity Rate Price Years to Mat: Coupon rater Annual Pmt: Current price Par value - FV YTM Your Choice Your Choice Maturity Rate Price 306.65 5.0% 1,216.474 7,0% 1,123.000 10.0% 1.000 13.0% 894.483 15.0% 83232 10 10% $100.00 $946.77 51,000.00 10.9% S. 1-Yr Maturity R Price S S. 70 STOR 100 ST 00.30 51.385.00 51.21071 $1,000.00 7.0% 10.07 13.05 15.0 5749.00 15.0 Years to Mat Coupon rate Annual Pet Current price: Par value=FV: YTM 1 10% $100.00 3991. 51,000.00 10. Do not make changes here Scratch sheet for Your Choice Years to Mat Coupon rate 10% Annual Pmt: $100.00 Current price: $96665 Par value=FV $1,000.00 YTV 10.9% Enter your choice for years to maturity The following table illustrates prices and percent changes for 10% coupon bands at different market interest rate levels 10-Year PICHA rd 5.0% 1-Year P Change $1,048 RS $1,000 145 5957 10.0% 5.000 15.0% 574 H. What is reinvestment rate risk? Which has more reinvestment rate risk, a 1-year bond or a 10-year band?