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Wednesday, January 13, 2016

Calculate the yield to maturity of a 6-year $2,000 par value bond

 January 13, 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.
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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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