A BBB-rated corporate bond has a yield to maturity of 9.8%. A U.S. Treasury security has a yield to maturity of 8.4%. These yields are quoted as APRS with semiannual compounding. Both bonds pay semiannual coupons at an annual rate of 9.1% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds? a. What is the price (expressed as a percentage of the face value) of the Treasury bond? The price of the Treasury security as a percentage of face value is ☐ %. (Round to two decimal places.)

A BBB-rated corporate bond has a yield to maturity of 9.8%. A U.S. Treasury security has a yield to maturity of 8.4%. These yields are quoted as APRS with semiannual compounding. Both bonds pay semiannual coupons at an annual rate of 9.1% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds? a. What is the price (expressed as a percentage of the face value) of the Treasury bond? The price of the Treasury security as a percentage of face value is ☐ %. (Round to two decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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which of the following bonds would you expect to have the highest yield? 1. 10-year US treasury bond 2. 1-year US treasury bond 3. 10-year corporate bond 4. 5-year municipal bond 5. 5-year US treasury bond
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate b AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate t AAA rating? The price of this bond will be ☐ %. (Round to three decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Important: The yields displayed are annually compounded yields. Security Treasury Yield (%) 3.14 AAA corporate 3.28 BBB corporate 4.27 B corporate 4.95 Print Done
29. Consider two fixed coupon bonds with the same maturity 10Y and same face value F = 100. Bond 1 pays yearly coupons with coupon rate C₁ = 5% and bond 2 has coupon rate C₂ = 7%. Which of the two bonds has a larger duration? (a) Bond 1. (b) Bond 2. 30. Consider two exchange rates X/Y and Z/Y. (For example EUR/USD and JPY/USD.) They both follow perfectly correlated geometric Brownian motions with parameters (μ1,01) and (μ2, 02). Does the cross-exchange rate X/Z (for example EUR/JPY) also follows a geometric Brownian motion? (a) Yes (b) No
Comment on the attractiveness of the bonds in two ways: a) How does the yield compare to the benchmark? Market YTM: 3.62% YTM of bond: 3.72% b) How does the current price compare to the benchmark-yield implied price? Price: 100.875 Implied price: 100.923
Assume that the real, risk-free rate of interest is expected to be constant over time at 3 percent, and that the annual yield on a 6-year corporate bond is 8.00 percent, while the annual yield on a 10-year corporate bond is 7.75 percent: you may assume that the default risk and liquidity premium are the same for both bonds. Also assume that the maturity risk premium for all securities can be estimated as MRP, (0.1%) *(t-1), where t is the number of periods until maturity. Finally assume that inflation is expected to be constant at 3 percent for Years 1-6, and then constant at some rate for Years 7-10 (4 years). Given this information, determine what the market must anticipate the average annual rate of inflation will be for Years 7-10. 2.583% O 1979% 2.281% 1.375 % O 1.677 % 4
Assuming that the bond with the coupon you computed in b.1 were issued today, show to what the market price of that bond in b.1 would change if the bond yield to maturity rose by 1% shortly after it was issued at par value (with the change in the yield to maturity occurring after issue due to a rise in yields on 10-year T-bonds and/or a reduction in the company’s default risk). Copuon Rate=4.86%
A BBB-rated corporate bond has a yield to maturity of 10.4 % . AU.S. Treasury security has a yield to maturity of 8.6 % . These yields are quoted as APRs with semi-annual compounding. Both bonds pay semi- annual coupons at a rate of 8.7 % and have five years to maturity. . What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price ( expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds? a
A BBB-rated corporate bond has a yield to maturity of 7.4%. A U.S. Treasury security has a yield to maturity of 5.7%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 6.1% and have five years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds? *round to three decimal places*
Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 8.8 percent, a YTM of 6.8 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 6.8 percent, a YTM of 8.8 percent, and also has 13 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,000. a. What are the prices of these bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What do you expect the prices of these bonds to be in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What do you expect the prices of these bonds to be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) bond X Bond Y a price today b price 1 years c price 3 years
Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 8.2 percent, a YTM of 6.2 percent, and has 15 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 6.2 percent, a YTM of 8.2 percent, and also has 15 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,000. a. What are the prices of these bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What do you expect the prices of these bonds to be in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What do you expect the prices of these bonds to be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What do you expect the prices of these bonds to be in eight years? (Do not round intermediate calculations and round your answers to 2…
A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in five years has a yield of 6.7%. A bond issued by Xerox due in five years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%. The default risk premiums on the bonds issued by Exxon and Xerox, respectively, are A. 1.2% and 1.0%. B. None of the options are correct. C. 1.0% and 1.2%. D. 0.7% and 0.5%. E. 0.5% and .7%.
If the nominal rate of return on a corporate bond is 15%, the pure rate is 4%, and the risk premium is 7%, what is the inflation premium on this bond? a. 3.34% b. 4.00% c. 0.00% d. 11.28%

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