a 2. Suppose there is a one-year discount bond trading in the Australian market with a face value of $1000 and supply an
Posted: Sat Mar 19, 2022 5:50 pm
- A 2 Suppose There Is A One Year Discount Bond Trading In The Australian Market With A Face Value Of 1000 And Supply An 1 (45.02 KiB) Viewed 70 times
previous question, and assuming this is a one-year bond, what would
be the effect on (a) the price and (b) the yield to maturity if the
RBA decided to sell 120 of these bonds from its own holdings to the
market?
a 2. Suppose there is a one-year discount bond trading in the Australian market with a face value of $1000 and supply and demand curves given by the following equations: Bd = 1240 – 0.6P 4 = BS = 1.4P – 7204 = where P is the price of the bond, Bd and BS represent the number of bonds supplied or demanded.
a. 1240 - 0.6P = 1.4P-7204 1,960 = 2P P = 980 b. Price of bond = FV/ (1 + YTM)12 980 = 1000/1 + YTM) 1 + YTM = 1000/980 YTM=2.04% c. B = 1240 - 0.6P B = 1240 - 0.6*9804 B = 1240 - 588 B = 652 YTM of a 2-year bond:- 7 d. 980 = 10004 1 + YTM) 24 (1 + YTM)2 = 1000/980– 1 + YTM = 1.01014 YTM= 1.015%