Essential of investments Assignment Example | Topics and Well Written Essays - 500 words

Essential of investments - Assignment ExampleThe accrued interest on the tie turned pop to be $2.42.The YTMs were calculated using the YIELD function on excel, with settlement project and maturity date taken at a difference of 10 years, voucher rate cosmos 14% and consequently reduced to half at 7%, the wedge price being $900, redemption value being $1000, and 1 coupon annually. The YTM based on what the unattackable promised is 2.55%. However, based on what the investors expect after the lenders and the firm agreed to move the payments the YTM became 1.80%. The expected YTM is lower than the YTM investors were actually promised.a. The initial price is calculated as P=$705.46, with n=20, I/Y=8, PMT=50, FV=1000. The price in the next period would be P=$793.29, with n=19, I/Y=7, PMT=50, FV=1000. Therefore the HPR is 19.53% calculated as, 50+(793.29-705.46)/705.46c. The 6% coupon bond performed better than the zero coupon bond in either case, when the interest rose or when they fell. This is probably due to the fact that the 6% coupon bond has a higher convexness. This shows that whenever we compare the change in give outs of bonds by equal amounts as is in this question, the bond with higher convexity will always outperform the one with lower convexity. The duration was most equal but the convexity of both the bonds were different in this example which is always positive implies that the convexity effect always favors the higher convexity bond.d. Such a scenario where the bonds would be priced at the same yield to maturity if the rates changed in equal amounts cannot exist. No investor would buy a bond with a lower convexity as it always underperform the higher convexity bond. The price of the lower convexity bond will be low with a high YTM, which means that the higher yield is to compensate the investor for investment in a lower convextiy bond.The top-down method of security valuation is approach used