Entries by admin

The value of the FRN

  A $1000 par floating rate note pays a coupon rate of 180-day LIBOR plus a quoted margin of 1.5% semi-annually. Given that there is exactly 2 years to maturity, and the latest 180day LIBOR is 2.8%, and the discount margin is 1.0%, what is the value of the FRN at this point?     […]

The total return on bond equivalent basis

  Suppose that an investor has 8 years investment horizon. The investor is considering a 20-year semi-annual coupon bond selling at par and having a coupon rate of 10%. The investor expectations are as follows: The first 6 semi-annual coupon payments can be reinvested from the time of receipt to the end of the investment […]

Annualized return

    Suppose a portfolio manager is considering the purchase of a bond, a 12-year, 8% non-callable bond selling at $1050 per $1000 of par value. Assume also that the portfolio manager’s investment horizon is 5 years. The portfolio manager believes the reinvestment rate range can vary from 3% to 6% and the discount rate […]

Total return of the bond on the assumption

  An investor is considering buying a bond from Company HelloWorld. The bond pays 12% semi-annual coupon, it has 15 years to maturity and the current price of this bond is $1,150. This bond is callable at the end of year 5 (the first and only call date). The call price of the bond is […]