Corporate bonds usually have a call feature embedded in their contract, this means that the company can call those bonds earlier than maturity. This also means the when you price a corporate bond you must calculate the YTM, if the bond is held to maturity, and the YTC, the yield up to the callable period of the bond. A Verizon bond is currently selling for $775 with 7% coupon and a 10 year maturity. Assume the par(face) value is $1,000. Since this corporate bond, it is also callable at 5 years for $1,075 face value. Calculate the YTM and then the YTC. use the approx YTM formula O Can not be determined with the information given. O YTM - 10.42%, YTC 14.62% O YTM = 10.42%, YTC = 5.30% O YTM - 8.80%, YTC - 7.69%

Corporate bonds usually have a call feature embedded in their contract, this means that the company can call those bonds earlier than maturity. This also means the when you price a corporate bond you must calculate the YTM, if the bond is held to maturity, and the YTC, the yield up to the callable period of the bond. A Verizon bond is currently selling for $775 with 7% coupon and a 10 year maturity. Assume the par(face) value is $1,000. Since this corporate bond, it is also callable at 5 years for $1,075 face value. Calculate the YTM and then the YTC. use the approx YTM formula O Can not be determined with the information given. O YTM - 10.42%, YTC 14.62% O YTM = 10.42%, YTC = 5.30% O YTM - 8.80%, YTC - 7.69%

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

See similar textbooks

Similar questions

problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables Findlay company recently issued bonds with a 20-year maturity, a 7.5% semiannual coupon, and a par value of $1,000. The going interest rate (kd, rd) is 6.0%, based on semiannual compounding. What is the bond's price?
A treasury bond with $100 maturity face value has a $9 annual coupon, and 15 years left to maturity. What price will the bond sell for assuming that the 15 year yield to maturity in the market is 4%, 9%, and 14% respectively. (Show working out, without the use of external software such as excel or stata) Explain whether the price movements would have been greater or smaller if a 10 year bond had been used rather than a 15 year one without any further calculations.
9. Interest Rate Risk. Suppose that you are a fixed income portfolio manager at Bourbon Street Capital. You have the following bonds issued by Royal, Inc. and Chartres, LLC in your portfolio and you want to understand the risk profile of your portfolio. Given that both bonds pay semiannual coupons, answer the following questions. (Remember to convert your answer to units of full years.) Coupon Yield to maturity Maturity (years) Royal, Inc. Chartres, LLC. Bond A Bond B 9% 8% 5 $100.00 $104.055 8% 8% 2 Par $100.00 Price $100.00 (a) What is the DV01 (at current prices) for bonds A and B? (b) What are the Macaulay Durations (at current prices) for the two bonds? (c) What are the modified durations for the two bonds? (d) What is the convexity of the two bonds?
The answers I got were wrong
Submit your solutions as an Excel document. Be sure to clearly label the various parts of the problem. 1. Consider the following two bonds that make semi - annual coupon payments. Assume the first coupon payment occurs in exactly six months, and the bond has a face value of $1000. Coupon Rate Time to Maturity YTM Bond A 3.80% 8 years 3.6% Bond B 3.80% 18 years 4.2% a.) What is the current price (t = 0) of Bond A? Be sure to set up the valuation equation. b.) What will be the price of Bond A exactly halfway in between t = 0 and the first coupon date? c.) Using a spreadsheet, plot the price - yield relationship for both Bond A and Bond B on the same set of axes. Do this for a range of yields from 2% to 11% (in increments of 50 basis points). d.) Use a spreadsheet to compute the annualized Macaulay duration and modified duration for Bond A at a yield - to - maturity of 3.6%. Provide an interpretation of the modified duration with regards to maturity and interest rate risk. e.) Use a…
A $1,000 15-year bond reportedly sells for $850.Which of the following assertions is the most likely to be true?a. The yield to maturity of the bond is higher than the coupon rate.b. The bond's price would sit at $850 if the yield to maturity is stable before the bond matures.c. The present yield of a bond is equivalent to the coupon rate.d. Both b and c are true.e. All of the above claims are true.
Do not use excel, use formulas to compute the question You have two bonds, Bond A and bond B: A 3-year zero-coupon bond with face value of $1,000 with a yield-to-maturity of 4%. A 6-year bond with an annual coupon payment C (to be paid out starting a year from now), a face value of $1,000 and yield-to-maturity of 5%. Assume that compounding takes place annually. If the price of Bond A is equal to the price of Bond B, what is the value of Bond B’s coupon payments (C)?
If possible, please calculate using excel and show formulas. The spot interest rates in the following downward-sloping term structure are: r1 = 4.6%, r2 = 4.4%, r3 = 4.2%, and r4 = 4.0%, r5=2%. Assume face value is $1,000. Calculate bond prices of a 5% coupon bond.
2. Finding the Yield to Maturity (I/Y) of bonds in the secondary market. Plug in the values in the formula, write the keys you enter in the Financial Calculator, and use Excel (formula and arguments). Use the Table below for each answer. a. A bond is currently traded at $850 in the secondary market. It matures in 7 years and has a coupon rate of 3%, paid semi-annually. Find the YTM (I/Y in the calculator) i. Is this a discount or premium bond? ii. Is YTM more or less than the Coupon Rate? iii. How are your previous two answers related? Explain. b. A bond is currently traded at $1350 in the secondary market. It matures in 7 years and has a coupon rate of 9%, paid semi-annually. (I/Y in the calculator) i. Is this a discount or premium bond? ii. Is YTM more or less than the Coupon Rate? iii. How are your previous two answers related? Explain. c. Describe the relationship between the YTM, the coupon rate, and the bond price.
You want to determine the value of your company bond that you have held. The market has not traded your security in a long time but still makes payments semiannually 6.2% coupon and 7 years. You find two similar bonds with characteristics as follows. Bond X: 4-year 6% coupon priced at 950 Bond Y: 6-year 5% coupon priced at 980, 1000 bond value a. What is the approximate price of your bond? b. How does your bond compare to the other two bonds?
may know the answer?
Suppose that you are interested in purchasing a bond issued by the VPI Corporation. The bond is quoted in the Wall Street Journal as selling for 89.665. How much will you pay for the bond if you purchase it at the quoted price? Assuming you hold the bond until maturity, how much will you receive at that time? If you purchase the bond at the quoted price, you would pay $. (Round to the nearest cent) Assuming you hold the bond until maturity, you would receive $ (Round to the nearest dollar)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS