M7-10. Interpreting Relations among Bond Price, Coupon, Yield, and Credit Rating The following appeared in Markets Insider ( ing bonds issued by Citigroup Inc. Price 166.43 122.70 Coupon (%) 6.80 5.15 Maturity 2038 2026 Yield to Maturity (%) 2.40 1.59 regarding outstand- Moody's Ratings A3 A3 a. Discuss the relation among the coupon rate, price, and yield for the bond maturing in 2038. b. Compare the yields on the two bonds. Why are the yields different when the credit ratings are the same?
M7-10. Interpreting Relations among Bond Price, Coupon, Yield, and Credit Rating The following appeared in Markets Insider ( ing bonds issued by Citigroup Inc. Price 166.43 122.70 Coupon (%) 6.80 5.15 Maturity 2038 2026 Yield to Maturity (%) 2.40 1.59 regarding outstand- Moody's Ratings A3 A3 a. Discuss the relation among the coupon rate, price, and yield for the bond maturing in 2038. b. Compare the yields on the two bonds. Why are the yields different when the credit ratings are the same?
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
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Transcribed Image Text:## Interpreting Relations among Bond Price, Coupon, Yield, and Credit Rating
### Text:
The following data appeared in Markets Insider regarding outstanding bonds issued by Citigroup Inc.
### Table:
- **Headers:** Price, Coupon (%), Maturity, Yield to Maturity (%), Moody’s Ratings
- **Row 1:**
- Price: 166.43
- Coupon: 6.80%
- Maturity: 2038
- Yield to Maturity: 2.40%
- Moody’s Rating: A3
- **Row 2:**
- Price: 122.70
- Coupon: 5.15%
- Maturity: 2026
- Yield to Maturity: 1.59%
- Moody’s Rating: A3
### Questions:
a. Discuss the relation among the coupon rate, price, and yield for the bond maturing in 2038.
b. Compare the yields on the two bonds. Why are the yields different when the credit ratings are the same?
### Explanation:
The table compares two bonds with different prices, coupon rates, maturities, and yields to maturity, yet both have the same Moody’s credit rating of A3. The table can be used to understand how bond price, coupon rate, and yield are interconnected, and to investigate factors that cause differences in yields despite identical credit ratings.
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