- Coupon Bond Rate Go to a website of your choice and search for Canada Bonds. (I recommend Globe and Mail and Financial Post)..
Choose 4 different Canadian bonds with the following characteristics:
- One Federal government bond trading at a premium with more than ten years to maturity
- One corporate bond trading at a discount with less than ten years to maturity
- One corporate bond trading at a premium with more than ten years to maturity
- One Provincial government bond trading at a premium with less than ten years to maturity
- For each bond, calculate the current yield.
- Compare the current yield to the yield to maturity. For which bonds is current yield closer in value to the yield to maturity? Explain
- Using Excel calculate the duration of the Federal Government bond
- 2.Term Structure of Interest Rates: Go to http://www.yieldcurve.com on the left hand side click on Yield Curves.
This web site allows you to plot the yield curves for UK Gilts and US Treasuries for different periods.
A. List the three facts about the term structure of interest rates
- B.Select a period and print a plot of an upward yield curve. Make comments using the theories you studied about the term structure of interest rates.
- C.Select another period and print a plot of an inverted yield curve and make comments using the theories you studied about the term structure of interest rates.
- D. Compare, generally, between the UK Gilt and the US treasury yield curves in 2. And 3 citing the power of prediction of the theories of term structure of interest rates in predicting the 2008/2009 financial crisis.
- 3.A bond with $1,000 face value, 5% coupon, market interest rates of %6, and three years to maturity.
- (1)Calculate the duration of the bond
- (2)Assume that market interest rates increased to 8%, re-calculate the duration of the bond
- (3)Assume that the market interest rates dropped to 1%, re-calculate the duration of the bond
- (4)Comment generally on the relationships between the interest rates, coupons, and the duration
- 4.Albert, a financial advisor in greater Halifax area, has just emailed his clients giving them the following advice: “there is no doubt that long-term bonds are a great investment because their interest rate is over 20%.” Comment generally on Albert’s advice. Do you agree him? Disagree? Or uncertain?