Problem 5-07
Suppose your expectations regarding the stock price are as follows:
coupon rate 0.08
par value 100
probability YTM Price Cap gain Coupon Interest HPR
Boom 0.2 0.11 $74.05 ($25.95) 0.08 -0.1795
Problem 5-08
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 8%
coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from
value of q probability squared deviations
0 0.25 1.5625
Problem 5-09
What is the standard deviation of a random variable qwith the following probability distribution: (Do not round
intermediate calculations. Enter your answer in numbers not in percentage. Round your answer to 4 decimal
places.)
1 0.25 0.0625
standard deviation 0.8292
Data
R 0.8
i 0.7
Problem 5-13
During a period of severe inflation, a bond offered a nominal HPR of 80% per
year. The inflation rate was 70% per year.
Data
price 100 84.49
Problem 5-18
Consider these long-term investment data:
•The price of a 10-year $100 par zero coupon inflation-indexed bond is $84.49.•A real-estate
property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate
of 10%.