Consider the following three bonds with semi-annual coupon frequency and $1000 face value.

Bond    Price    Coupon rate (%)          Term to maturity

F          884.20             7                                  5

G         948.90             8                                  7

H         967.70             9                                  4

For each of the three bonds:

a. Draw a timeline and indicate the payoffs.

b. Compute the (annualized) yield to maturity.

c. Calculate the current yield.

d. Consider a portfolio composed by 2/3 of F bonds and 1/3 of G bonds. Calculate the price and the yield to maturity of the portfolio.

e. Consider a portfolio composed by 2/3 of F bonds and 1/3 of H bonds. Is it easier to determine the yield to maturity in this case?

4. Suppose that a bond is purchased between coupon periods. The days between the settlement date and the next coupon period is 115. There are 183 days in the coupon period. Suppose that the bond purchased has a coupon rate of 7.4% and there are 10 semi-annual coupon payments remaining.

a. What is the dirty price of this bond if a 5.6% discount rate is used?

b. What is the accrued interest for this bond?

c. What is the clean price?