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Tuesday, January 12, 2016

Calculate the yield to maturity of a 6-year

 January 12, 2016     No comments   

1- Calculate the yield to maturity of a 6-year $2,000 par value bond with an annual coupon rate of 6.15% and a current price of $3,250: 
A- Provide the solutions for both annual and semi-annual payments of interest. 
B- Comment on the relationship between the yield to maturity and the timing of interest payments, providing an appropriate table or graph. 
----- 
2- Suppose today is 12 September 2010. The January 20th 2012 call on Michael Baker Co. common stock is priced at $5.80. The exercise price of the call option is $62.50. The expiry date of the option is January 20th , 2012. The 12 September 2010 price of Michael Baker Co. common stock is $61.92. The risk free rate is 1.5%. 
- You are required to derive the implied volatility s (sigma) of the underlying asset from the current market price of the January 20th 2012 call on Michael Baker Co. common stock. 
- Assume a 15% starting value for s to set up a theoretical model of the price of the call option. 
- Assume the stock does not pay a dividend before the expiry date. 
- Present your opinion and comment on the results. Also: proper excel formulas should be used and demonstrated in the sheet.
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