Consider the following two bonds: Bond A Bond B Face value $1,000 $1,000 Coupon rate (annual) 8% 8% YTM 9% 7% Maturity 10 years 10 years Price (PV) ? ? Calculate the price for each bond. What is the primary factor affecting the prices of the bonds? Indicate which bond is premium and which one is discount. Is there any relationship between the YTM and the coupon rate in case of premium/discount bonds? Now, consider the following two bonds: Bond X Bond Y Face value $1,000 $1,000 Coupon rate (annual) 8% 8% YTM 11% 11% Maturity 5 years 10 years Price (PV) ? ? Calculate the price for each bond. What is the relationship between bond price and maturity, all else equal? A bond with a par value of $1,000 and a maturity of 8 years is selling for $925. If the annual coupon rate is 7%, what’s the yield on the bond? What would be the yield if the bond had semiannual payments? A bond has a par value of $1,000, a time to maturity of 8 years, and a coupon rate of 10% with interest paid annually. If the current market price is $875, what will be the approximate price of this bond at the end of the first year? A 15-year maturity, 8% coupon bond paying coupons semiannually is callable in 7 years at a call price of $1,050. The bond currently sells at a yield to maturity of 9% per year. What is the yield to call? What is the yield to call if the call price is $1,100 and the bond can be called in 3 years instead of 7 years? A bond with a 10% coupon paid semiannually every January 15 and July 15 is quoted as selling at an ask price of $1,012.5. If you buy the bond from the dealer today (check the date!), what price will you pay for it? What price will you pay for the bond if the coupons are paid quarterly? [You need to calculate the accrued interest in both cases to calculate the invoice price].

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 11MC

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Related questions

Question

Consider the following two bonds:

	Bond A	Bond B
Face value	$1,000	$1,000
Coupon rate (annual)	8%	8%
YTM	9%	7%
Maturity	10 years	10 years
Price (PV)	?	?

Calculate the price for each bond. What is the primary factor affecting the prices of the bonds? Indicate which bond is premium and which one is discount. Is there any relationship between the YTM and the coupon rate in case of premium/discount bonds?

Now, consider the following two bonds:

	Bond X	Bond Y
Face value	$1,000	$1,000
Coupon rate (annual)	8%	8%
YTM	11%	11%
Maturity	5 years	10 years
Price (PV)	?	?

Calculate the price for each bond. What is the relationship between bond price and maturity, all else equal?

A bond with a par value of $1,000 and a maturity of 8 years is selling for $925. If the annual coupon rate is 7%, what’s the yield on the bond? What would be the yield if the bond had semiannual payments?

A bond has a par value of $1,000, a time to maturity of 8 years, and a coupon rate of 10% with interest paid annually. If the current market price is $875, what will be the approximate price of this bond at the end of the first year?

A 15-year maturity, 8% coupon bond paying coupons semiannually is callable in 7 years at a call price of $1,050. The bond currently sells at a yield to maturity of 9% per year.

What is the yield to call?
What is the yield to call if the call price is $1,100 and the bond can be called in 3 years instead of 7 years?

A bond with a 10% coupon paid semiannually every January 15 and July 15 is quoted as selling at an ask price of $1,012.5. If you buy the bond from the dealer today (check the date!), what price will you pay for it? What price will you pay for the bond if the coupons are paid quarterly? [You need to calculate the accrued interest in both cases to calculate the invoice price].

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