bond question, for the first question a) i alredy finished , so you could save times on thatMoney and Banking Assignment
Assignment 1
ECONOMICS 3307: MONEY AND BANKING
Fall 2020
Assigned: Sep 24, 2020
Due: October 8, 2020
Instructions:



Answer all questions
Late assignment will not be accepted.
Get to the point. Be clear and concise.
1. Go to a website of your choice and search for Canada Bonds. (I recommend
https://markets.businessinsider.com/bonds ) – Scroll down to “bond finder” and choose 6 different
Canadian bonds with the following characteristics:



Two Federal government bonds with any maturity
Two Corporate bonds with any maturity
Two Provincial government bonds with any maturity
a. For each bond, calculate the current yield using the “Bid Price”
Coupon rate
Annual payment
Bid price
Government bond 1.75%
17.5
1004.1
Government bond 8.00%
80
1200.5
Provincial bond
8.00%
80
1209.7
Provincial bond
6.25%
62.5
1000
Corporate bond
1.78%
17.8
987.7
Corporate bond
5.03%
50.3
1089.3
b. Comment generally on each bond and state if you would buy or not.
~1~
Current yield
1.74%
6.66%
6.61%
6.25%
1.80%
4.62%
Money and Banking Assignment
2.
A bond with $1,000 face value, 10% coupon, market interest rates of %5, and three years to
maturity.
a. Calculate the duration of the bond
b. Assume that market interest rates increased to 7%, re-calculate the duration of the bond
c. Assume that the market interest rates decreased to 3%, re-calculate the duration of the bond
d. Comment generally on the relationships between the interest rates, coupons, and duration
3.
A $1000 face value bond has a 10% coupon rate, its current price is $990, and its price is expected
to increase to $1,050 next year. Calculate the return of the bond.
4. Assume that you are holding two bonds. A 30 year zero coupon bond, and 30 year coupon bond
with 2% coupon. You are not planning to hold the bonds till maturity. If you expect the interest
rates to decrease sharply, which bond would you rather get rid-off (sell)? explain
5. Reade this case carefully. “You relative asks you to lend him money and promised to pay you 8%
per year. You know that the bank offers 5% return on a saving account. You declined to lend your
relative, and, instead, you deposited you money in the bank to earn 5%. Your relative ended up
taking a loan from the bank at 12%”. Based on what we covered in class, comment generally on this
case.
~2~

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