Chapter 7 Finance

Problem 1 Determine the interest payment for the following three bonds (Assume a $1,000 par value.) (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places):

3 ½ percent coupon corporate bond (paid semiannually): ½ × 0.035 × $1,000 = $17.50 4.25 percent coupon Treasury note: ½ × 0.0425 × $1,000 = $21.25 Corporate zero coupon bond maturing in ten years: 0.00 × $1,000 = $0

Compute the price of a 5.6 percent coupon bond with ten years left to maturity and a market interest rate of 7.0 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations and round your final answer to 2 decimal places.)

or TVM calculator: N = 20, I = 3.5, PMT = 28, FV = 1,000; CPT PV = -900.51 Since the bond's price is less than $1,000, it is a discount bond.

Consider the following three bond quotes: a Treasury bond quoted at (106.114) 106.438, a corporate bond quoted at 96.55, and a municipal bond quoted at 100.95. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars? (Do not round intermediate calculations and round your final answers to 2 decimal places.)

3rd edition (T note only difference) Treasury note at 106.14: 106.14% × $1,000 = 1.0614 × $1,000 = $1,061.40 **Change from 2nd ed) 4th edition Treasury note at 106.438: 106.438% × $1,000 = 1.06438 × $1,000 = $1,064.38. 3rd and 4th edition Corporate bond at 96.55: 96.55% × $1,000 = 0.9655 × $1,000 = $965.50 Municipal bond at 100.95: 100.95% × $5,000 = 1.0095 × $5,000 = $5,047.50

What's the current yield of a 5.2 percent coupon corporate bond quoted at a price of 96.78? (Round your answer to 2 decimal places.)

5.2% / 96.78% = 0.05373 = 5.37% OR $52/$967.80 = 5.37%

A 6.5 percent coupon bond with 14 years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.8 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Calculation of teh current bond price: TVM calculator: N = 28, I = 3.6, PMT = 32.50, FV = 1,000; CPT PV = -938.89 Calculation of the price in one year: TVM calculator: N = 26, I = 3.4, PMT = 32.50, FV = 1,000; CPT PV = 974.38 So, the dollar change in price is: $974.38 - $938.89 = $35.49

Calculate the price of a 5.7 percent coupon bond with 22 years left to maturity and a market interest rate of 6.5 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations and round your final answer to 2 decimal places.) Is this a discount or premium bond?

Discount or TVM calculator: N = 44, I = 3.25, PMT = 28.50, FV = 1,000; CPT PV = -907.05 Since the bond's price is less than $1,000, it is a discount bond.

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 2.9 percent for an investor in the 28 percent marginal tax bracket? (Round your answer to 2 decimal places.)

Equivalent taxable yield= 2.9% / 1-0.28= 4.03%

Problem 3 A bond issued by Ford on May 15, 1997 is scheduled to mature on May 15, 2097. If today is November 16, 2014, what is this bond's time to maturity? (Use 365 days a year.)

May 15, 2097 minus November 16, 2014 = 82 years and 6 mon

Equivalent taxable yield equals

Muni yield ( aka yield to maturity)/ 1-tax rate

A 5.5 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Principal + Call premium = $1,000 + 0.055 × $1,000 = $1,055

A 4.30 percent coupon bond with 14 years left to maturity is offered for sale at $943.22. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

TVM calculator: N = 28, PV = -943.22, PMT = 21.5, FV = 1,000; CPT I = 2.432% YTM = 2.432% × 2 = 4.86%

A 5.25 percent coupon bond with 14 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,075.50. What is the yield to call of the bond? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

TVM calculator: N = 8, PV = -1,075.50, PMT = 26.25, FV = 1,052.50; CPT I = 2.193% YTC = 2.193% × 2 = 4.39%

Calculate the price of a zero coupon bond that matures in 15 years if the market interest rate is 5.75 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

TVM: 15 = N, 5.75 = I/Y, 0 = PMT, 1000 = FV, CPT PV = -432.3091 (Author said -427.27)