I know I haven’t posted in years but I’ve been busy and hence rusty with most concepts. Hence, I need help in this problem set.
This is the question:
1. Calculate the value of the company’s debt portfolio using the data
shown above. Assume that Celtic Dream Ltd. finances 70% of its balance sheet
with its bonds.
2. Calculate the duration of
each bond and explain what these duration values imply. Calculate the duration
of the company’s bond portfolio.
The company’s debt portfolio consists of the following bonds.
Corporate Debt Portfolio
Bond Issue: Nominal
Value (Euro €)
4.5% Celtic Dream Ltd. Corporate Bond 2016 200,000,000
5.0% Celtic Dream Ltd. Corporate Bond 2018 300,000,000
6.0% Celtic Dream Ltd. Corporate Bond 2020 500,000,000
7.5% Celtic Dream Ltd. Corporate Bond 2029 900,000,000
*** Assume all bonds follow calendar year. Eg 4.5% Celtic Dream Ltd. 2016
matures 31.12.2016, and that all bonds pay coupon semi-annually. (It is 1 January 2015)
The following interest rates currently apply in the market.
Zero- Interest Rates
Maturity: 6mths 12mths 18mths 24mths
Yield : 0.5% 0.65% 0.80% 1.10%
Corporate Bond Yields
yr 4yr 10yr 15yr
Yield : 1.0% 2.3% 2.8% 1.10%
Would appreciate all the help I can get. Thanks in advance.
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