FIN3210 Bond Homework

Suppose you have 2 bonds in your portfolio: Bond A and Bond B. Both bonds mature in 10 years. Bond A has a coupon rate of 8% and Bond B has a coupon rate of 10%. If interest rates in the economy are 9%,

Bond A trades at a discount but Bond B trades at a premium

ABC Corp. issued a 30 year bond, 3 years ago, with a par value of $1,000, and a coupon payment of $60. If the bond today is selling for $850, which of the following statements is FALSE?

Interest rates must have gone down since the bond was issued.

__________________ bonds are issued by state or local governments.

Muni

____________________ are bonds issued by state/local governments.

Municipal

Suppose you hold 2 bonds in your portfolio: Bond X and Bond Z. Each bond has a coupon rate of 10%. Bond X matures in 5 years and Bond Z matures in 10 years. If market interest rates increase from 5% to 8%, __________________________.

the price of both bonds will decrease but the impact on Bond Z will be larger than Bond X

Reynolds Corp. has outstanding bonds with 10 years to maturity and a 12% coupon. If the face value of each bond is $1,000 and interest rates in the economy are 5%, what is the bond's current price?

$1,540.52

XYZ Corp has outstanding bonds with effective maturity of 10 years, 3% annual coupon, paid semiannually and a par value of $1,000. If interest rates are 10%, what is the bond's price?

$563.83

XYZ Corp just issued a 10-year, 7% coupon bond. The par value of the bond is $1,000 and the bond makes semiannual coupon payments. If interest rates are 10%, what is the bond's price?

$813.07

In a refunding operation, a firm ___________________.

-Calls outstanding bonds before they mature -Raises low-yield debt to retire high-yield debt -Takes advantage of lower interest rates

DM Inc.'s outstanding, callable bonds were issued seven years ago, with a coupon rate of 5%, original maturity of 25 years, par value of $1,000, call price of $1,100 and 10 years of call protection. The bonds are currently selling for $1,200. Interest rates are expected to remain stable in the next few years. Calculate the return that an investor purchasing the bond today should expect to earn.

1.43%

A bond with a par value of $1,000 and a coupon rate of 7.5% matures in 4 years. If the bond's current price is $980, what is its yield to maturity?

8.10%

XYZ Firm has outstanding bonds with effective maturity of 25 years, call protection of 3 years, coupon rate of 8%, par value of $1,000 and a call price of $1090. The bonds are trading at a price of $950. If interest rates are expected to continue their current trend, what yield should a bond investor in XYZ expect to earn?

8.49%