Exhibit 19.2
Use the Information Below for the Following Problem(S)
The following information is given concerning a substitution swap. You currently hold a 15 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 15 year, 7 percent coupon bond priced to yield 8.5 percent. Assume a reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout period.
$$\begin{array} { l c c }
& \text { Current Bond } & \text { Candidate Bond } \
\hline \text { Dollar Investment } & \$ 913.54 & ? \
\text { Caupan } & 70.00 & 70.00 \
\text { i an One Coupon } & 1.487 & 1.487 \
\text { Principal Value at Year End } & 916.68 & 878.55 \
\text { Total Accrued } & 988.17 & 950.04 \
\text { Total Gain } & 74.63 & ? \
\text { Gain per Invested Dollar } & ? & ? \
\text { Realized Compound Yield } & ? & ?
\end{array}$$
-Refer to Exhibit 19.2.The value of the swap is ____ basis points in one year.

Question

Exhibit 19.2
Use the Information Below for the Following Problem(S)
The following information is given concerning a substitution swap. You currently hold a 15 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are considering a 15 year, 7 percent coupon bond priced to yield 8.5 percent. Assume a reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout period.
 $$\begin{array} { l c c } 
& \text { Current Bond } & \text { Candidate Bond } \
\hline \text { Dollar Investment } & \$ 913.54 & ? \
\text { Caupan } & 70.00 & 70.00 \
\text { i an One Coupon } & 1.487 & 1.487 \
\text { Principal Value at Year End } & 916.68 & 878.55 \
\text { Total Accrued } & 988.17 & 950.04 \
\text { Total Gain } & 74.63 & ? \
\text { Gain per Invested Dollar } & ? & ? \
\text { Realized Compound Yield } & ? & ?
\end{array}$$
-Refer to Exhibit 19.2.The value of the swap is ____ basis points in one year.

Quizplus · Accepted Answer

The value of the swap is calculated by comparing the total gains of the current bond and the candidate bond. The total gain for the current bond is $74.63. For the candidate bond, the total accrued is $950.04, and the dollar investment is the price of the bond, which is not directly given but can be calculated from the yield and coupon. The difference in total gains, when converted to basis points, results in 49.1 basis points.

Exhibit 19 -Refer to Exhibit 19