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1. A $1,000 face value bond with an 8.0000% coupon rate paying semiannual coupons has 10 years of maturity has a fair market value of $1,034.74. a. What is this bond’s yield to maturity? 7.5000% b. If this bond’s yield to maturity changes to 9.0000%, what would be this bond’s price? $934.96

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  1. Homework 3 1. A $1,000 face value bond with an 8.0000% coupon rate paying semiannual coupons has 10 years of maturity has a fair market value of $1,034.74. a. What is this bond’s yield to maturity? 7.5000% b. If this bond’s yield to maturity changes to 9.0000%, what would be this bond’s price? $934.96 2. The prices of several $1,000 face value bonds are shown in the table below. For each bond, state whether the bond sells at par, at a discount or at a premium. 3. Jackpot Jim’s Casino is considering issuing 500 $1,000 face value bond with a 30-year maturity and a coupon rate of 7.0000% p.a. paying annual coupons. The casino currently has a Standard & Poors A rating. However, due to recent financial difficulties at the casino, Standard & Poors is warning that it may downgrade the rating to BBB. The yield on A-rated, 30-year bonds is currently 6.5000% and the yield on BBB-rated bonds is 6.9000%. a. What is the price of these bonds if the casino maintains the A-rating? VB = $1065.29 b. What will the price of these bonds be if the casino’s bond rating is down graded to BBB? VB = $1012.53 4. A $1000 face value bond with a maturity of 6 years and a 7.8750% coupon rate paying quarterly interest payments is currently selling for $992.57 (minus fees and transaction costs). The most recent dividend was paid yesterday. What is the yield to maturity of this bond? 8.0323%

  2. Homework 3 5. At the beginning of the year a $1,000 face value bond paying a coupon rate of 8.4800% APR with quarterly payments and 11.5 years maturity was selling at par (excluding fees and transaction costs). Coupons are paid at the end of each quarter. At the end of the year the bond's YTM was 7.8500%. What is the bond’s total yield for the year? 13.2311% 6. You are considering purchasing a $1,000 face value A rated bond with 9.75 years to maturity and a coupon rate of 8.650% with semiannual payments. Today’s Wall Steet Journal indicates that all A rated bonds with a maturity of 9.75 years have a YTM of 8.2500%. The largest sales commission you are willing to pay is 5%. How much would you be willing to pay for this bond today? (Show all computations and/or calculator inputs; work in at least 4 decimal places) [Hint: Recall that ROR (sales commission) is (Sales Price - Fair Market Value) / Fair Market Value] $1,077.76 7. A $1,000 face value Diamond Jim’s Corporation bond matures 1 Sep 2014. It has a 7.5750% coupon rate and pays coupons semiannually. Its YTM as of 1 Dec 2010 was 8.8250%. What was this bond’s FMV as of 1 Dec 2010?$960.62

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