Finance Chapter 7 HW

Yield to maturity

A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond? N: 16 I/Y: PV: 95,000 PMT: 5,400 FV: 1,000

Current yield YTM Effective annual yield

Bourdon Software has 9.6 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.6 percent of par. The current yield is: Current yield = Annual coupon payment / Price Current yield = $96 / $1,076 Current yield = .0892, or 8.92% Enter N: 40 I/Y: X PV:1,076 PMT: 96 / 2 FV: 1,000 4.393% × 2 = 8.79% Enter 8.79 % 2 NOM: 8.79 EFF: Solve for 8.98% C/Y: 2

Coupon rate

DMA Corporation has bonds on the market with 19.5 years to maturity, a YTM of 8 percent, and a current price of $1,069. The bonds make semiannual payments and have a par value of $1,000. What must the coupon rate be on these bonds? N: 39 I/Y: 8.0% / 2 PV:1,069 PMT: FV: 1,000 solve for PMT 43.52(2) / $1,000 = 8.70%

Coupon rate Bid price Asked price

Locate the Treasury issue in Figure 7.4 maturing in February 2031. Assume a par value of $10,000. The coupon rate, located in the second column of the quote, is 5.375 percent. The bid price is: Bid price = 125.8984 = 125.8984% Bid price = (125.8984 / 100)($10,000) Bid price = $12,589.84 The previous day's asked price is found by: Previous day's asked price = Today's asked price - Change Previous day's asked price = 125.9766 - (-.7266) Previous day's asked price = 126.7032 The previous day's price in dollars was: Previous day's dollar price = 126.7032 = 126.7032% Previous day's dollar price = (126.7032 / 100)($10,000) Previous day's dollar price = $12,670.32

Real return

Say you own an asset that had a total return last year of 10.8 percent. If the inflation rate last year was 5.1 percent, what was your real return? The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is: (1 + R) = (1 + r)(1 + h) r = [(1 + .108) / (1 + .051)] - 1 r = .0542, or 5.42%

Maturity of bond

Shinoda Corp. has 6 percent coupon bonds making annual payments with a YTM of 5.2 percent. The current yield on these bonds is 5.55 percent. Current yield = .0555 = $60 / P0 P0 = $60 / .0555 P0 = $1,081.08 Enter 5.2% ±$1,081.08 $60 $1,000 N: I/Y:5.2% PV: 1,081.08 PMT: 60 FV: 1,000 Solve for N 14.77

Current Bond Price

Sqeekers Co. issued 14-year bonds a year ago at a coupon rate of 8.6 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.9 percent, what is the current bond price? N: 26 I/Y: 6.9% / 2 PV: PMT: 86 / 2 FV: 1,000 PV 1,144.38

YTM Current yield

Suppose the following bond quotes for IOU Corporation appear in the financial page of today's newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2015. Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s) IOU (IOU) 6.4 Apr 19, 2028 103.96 ?? 1,838 The current yield is the annual coupon payment divided by the bond price, so: Current yield = $128 / $2,079.20 Current yield = .0616, or 6.16% Calculator Solution: Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation. Enter N: 26 I/Y: X PV: $2,079.20 PMT: 128 / 2 FV: 2,000 2.979% × 2 = 5.96%

Treasury bill rate

Suppose the real rate is 3.1 percent and the inflation rate is 4.7 percent. What rate would you expect to see on a Treasury bill? The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is: (1 + R) = (1 + r)(1 + h) R = (1 + .031)(1 + .047) - 1 R = .0795, or 7.95%