Business Finance Ch6 HW - Connect

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2019. The bonds have a par value of $2,000 and semiannual coupons. Company Coupon Maturity LP LY EST Xenon, Inc. (XIC)6.700 Jan 15, 2036 94.313 ?? 57,375 Kenny Corp. (KCC)7.250 Jan 15, 2033 ?? 6.28 48,954 Williams Co. (WICO)?? Jan 15, 2039 96.865 6.53 43,815 What is the coupon rate for the Williams Co. bond?

(a) =PMT (rate, nper, pv, [fv], [type]) Tenure of bond = 2019 -2039 Tenure of bond = 20 years Current price of bond = $2,000x96.865% Current price of bond = 1937.3 Par value of bond = $2,000 Current price of bond = $1937.3 Yield of Maturity = 6.53% Tenure of bond = 20 Years =PMT({6.53%/4} ,{20*4} ,-1937.3, 2000) PMT= 31.24 Coupon rate = 31.24 x (4/2000) x 100 Coupon rate = 6.248

Both Bond Bill and Bond Ted have 9.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 7 years to maturity, whereas Bond Ted has 24 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

(a) Bond Bill CURRENT******** Face value = 1000 Coupon rate = 0.098 M = 2 Coupon = $49 // (0.098x1000)/2 Year = 7 Period = 14 // (7x2) YTM = 0.098 Price, PV = 1,000 // =PV({ 9.8%/2}, 14, -49,-1000,0) EXPECTED******* Face value = 1000 Coupon rate = 0.098 M = 2 Coupon = $49 // (0.098x1000)/2 Year = 7 Period = 14 // (7x2) [% change in YTM = 2%] YTM = 0.1180 // (9.8% + 2%) Price, PV = $906.47 // =PV({ 11.8%/2}, 14, -49,-1000,0) Change in Price = (93.53) // (906.47 - 1,000) Change in % = Change in price/ Original price) Change in % = -93.53/1000 Change in % = -9.35 (a) Excel Work shown: https://gyazo.com/4c559fe9e55a81554efaa0fb6d78c8b3 Excel Answer: https://gyazo.com/e57bf69a5135125d01b9289ab9073922 Bond Bill = -9.35% Bond Ted = -15.87 (b) Excel Work shown: https://gyazo.com/188983cef4055ae223154c5492db67f3 Excel Answer: https://gyazo.com/148fc13dfc2dc02029f39492c1b294c9 Bond Bill = 10.63% Bond Ted = 21.55%

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2019. The bonds have a par value of $2,000 and semiannual coupons. Company(Ticker)CouponMaturityLastPriceLastYieldEST $ Vol(000's) Xenon, Inc. (XIC)7.10 Jan 15, 2042 94.387 ?? 57,379 Kenny Corp. (KCC)7.29 Jan 15, 2039 ?? 6.36 48,958 Williams Co. (WICO)?? Jan 15, 2046 94.905 7.18 43,819 What is the yield to maturity for the bond issued by Xenon, Inc.?

(a) For Xenon Bond, Par value = $2,000 Last price = $1887.74 // ($2,000 × 94.387%) # of yrs in maturity = 23 // (2042 - 2019) Face value(FV) = 2,000 Coupon rate = 7.10% Semiannual Coupon payment = 71.00 Yr Remaining for maturity = 23 yrs Current price = -1887.74 =RATE(23*2,71,-1887.74,2000) RATE = 3.81% Yield to maturity = rate x 2 Yield to maturity = 3.81% x 2 Yield to maturity = 7.62%

Suppose your company needs to raise $40.9 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 5.9 percent, and you're evaluating two issue alternatives: a 5.9 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 24 percent. a. How many of the coupon bonds would you need to issue to raise the $40.9 million? How many of the zeroes would you need to issue? (Do not round intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your zero coupon bond answer to 2 decimals, e.g., 32.16.) b. In 30 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeroes? (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year under the two different scenarios. (Input a cash outflow as a negative value and a cash inflow as a positive value. Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)

(a) Number of coupon bonds = 40,900,000/1000 Number of coupon bonds = 40,900 Number of zero coupon bonds = 40,900,000/PV({5.9%/2}, {30x2},,1000) x (-1) Number of zero coupon bonds = 234,047.69 (b) Coupon bonds repayment = 40900x1000+40,900,000x{5.9%/2} Coupon bonds repayment = 42,106,550 Zeros repayment = 234047.69x1000 Zeros repayment = 234,047,690 (c) Coupon bond cash flow = -40,900,000x5.9%x(1-.24) Coupon bond cash flow = -1,833,956.00 Zero coupon bond cash flow = 40,900,000x((1+5.9%/2)^2-1)x24% Zero coupon bond cash flow = 587,686.37

Lion Corp. has a $2,000 par value bond outstanding with a coupon rate of 5.1 percent paid semiannually and 29 years to maturity. The yield to maturity on this bond is 4.2 percent. What is the dollar price of the bond?

(a) Price of bond = Coupon Payment x (1 -(1+r)^-n / r) + Face value/ (1 + r)^n Price of bond = (0.051/2 x $2,000) x {1-(1+0.042/2)^-(29 x 2) / (0.042/2) } + ($2,000/ (1+0.042/2)^(29x2) Price of bond = 51 x 33.353526 + 599.1519 = $2,300.18 Solving by Excel: = PV( Rate, NPER, Pmt, -FV) = PV({4.2%/2}, {29x2}, {-2000x(5.1%/2)}, {-2000}) = 2300.181732 PV = $2300.18

If Treasury bills are currently paying 6.2 percent and the inflation rate is 1.9 percent, what is the approximate and the exact real rate of interest? (a) Approximate real rate (b) Exact real rate

FISHER EFFECT --nominal rate is like interest rate or rate of return (1+R)=(1+r)(1+h) (1+ nominal rate)=(1+ real rate )(1+ expected inflation rate) (a) 6.2% = Real interest rate+1.9% = 6.2 - 1.9 (b) (1 + nominal rate) = (1 + real interest rate)×(1 + inflation rate) (1+6.2%) = (1 + real interest rate)×(1 +1.9%) Real interest rate = 4.22%

You purchase a bond with an invoice price of $1,130. The bond has a coupon rate of 10.6 percent, semiannual coupons, and a par value of $1,000, and there are three months to the next coupon date. What is the clean price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

P = Purchase price C = Coupon rate F = Frequency D = Day since last coupon rate T = total number of days in pay period P = 1000 C = 10.6% F = 2 (semiannually) D = 3 // ( 6 months - 3 month to next coupon) T = 6 // (12 months / 2 semiannually) Dirty price = 1,130 Accrued interest = P x C/F x D/T Accrued interest = 1000 x 0.106/2 x (3/6) Accrued interest = 26.5 Clean price = dirty price - accrued interest Clean price = 1130 - 26.5 Clean Price = $1103.50

Big Canyon Enterprises has bonds on the market making annual payments, with 18 years to maturity, a par value of $1,000, and a price of $955. At this price, the bonds yield 9.2 percent. What must the coupon rate be on the bonds?

Time = 18 yrs Face value = 1000 Price = 955 yfm = 9.2% =PMT (rate, nper, pv, [fv], [type]) = PMT(9.2%, 18, -955, 1000) CPT PMT = 86.79 Coupon = 86.79 Coupon percentage = 86.79/1000 x 100 Coupon percentage = 8.68%

You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2019 and the bond has a par value of $1,000. RateMaturityMo/YrBidAskedChgAskYld?? May 27 103.5436 103.5314 +.3274 5.959 6.152 May 32 104.4926 104.6383 +.4269 ?? 6.153 May 42 ?? ?? +.5379 3.991 a. In the above table, find the Treasury bond that matures in May 2042. What is the asked price of this bond in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the bid-ask spread for this bond is .0647, what is the bid price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

SEMI ANNUAL Years = 23 // (2042-2019) YTM = 3.991% Coupon = 6.153% Face Value = 100 Market Interest rate = 1.9955% // (3.991% x .5) No. of Periods = 46 // (23 x2) Semi Annual Coupon = 3.0765 //(6.153% /2) Price = PV( 1.9955%, 46, -3.0765,-100) Price = 13234.22% Asked Price = 132.3422 x 1000 Asked Price = 1323.42 Another Method P = $30.765(PVIFA1.9955%,46) + $1,000(PVIF1.9955%,46)P = $1,323.42 (b) Bid price in dollars = Asked Price for the Bond - Change in bid-ask spread in Dollars Bid price = $1,323.42 - (.0647/100)($1,000) Bid price = $1,322.78 Explanation****** https://gyazo.com/f617076a73c4b7eea612e6215b767741

Vulcan, Inc., has 8.8 percent coupon bonds on the market that have 7 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 10.8 percent, what is the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Solving by Excel: = PV( Rate, NPER, Pmt, -FV) = PV(10.8%, 7, {-1000x8.8%}, {-1000}) PV= 905.1439635 Current bond price(PV)= $905.14