Business, 06.04.2021 01:50 gmedisa08

At time 0, the U. S. Treasury auctions oï¬€ a ten-year bond with a par value of $100, and semi annual payment of $2.5 per share every six months. The auction price was at q0 = $97:5 dollars per share. Draw a timeline of the treasury bondâ€™s cash payouts. Denote the maturity of this treasury bond at time 0, as YTM0 treasury. Solve for the yield to maturity. In period 0, a large corporation auctioned oï¬€ a ten-year bond with par value of $100. The bond has an annual coupon rate of 6%; it pays out a coupon payment of $3 per share every six months. It is known that the implied yield to maturity of this corporate bond is 150 basis points above Y T M0treasury, at what price per share (denote it as p0) can the company expect to sell the bonds to the public? In period 1, after coupon payments were made, bad news on the US economy breaks out and bond investors "fly to safety" by selling the corporate bonds and buying treasury bonds. The corporate bonds were traded at p1 = $80 per share, while the treasury bond were traded at q1 = $99:5 dollars per share.

a. Whatâ€™s the period 1 Y T M on corporate bond and treasury bond?
b. Suppose in period 0 an investor short sold 100 shares of treasury bond at price of q0, and use the proceeds to buy corporate bonds at price of p0. Assume investors are allowed to buy fractional shares. The same investor then sells the corporate bond in period 1, using the proceeds from which along with his own funds to unwind his short position in treasury bonds. What is the realized percentage return of his investments?

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At time 0, the U. S. Treasury auctions oï¬€ a ten-year bond with a par value of $100, and semi annua...

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