FIN 3000 CH 7 HW
Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment? Call premium Yield Face value Discount Coupon
Coupon
Genova Corporation has a four year 10% annual coupon bond. The price of the bond is $956.12. The Yield to Maturity is 11.43%. What is the current yield on this bond? 10.01% 11.05% 9.38% 11.43% 10.46%
Current Yield=$100/$956.12 or http://www.moneychimp.com/calculator/bond_yield_calculator.htm 10.46%
Gabriele Enterprises has bonds on the market making annual payments, with twelve years to maturity, a par value of $1,000, and selling for $984. At this price, the bonds yield 7.7 percent. What must the coupon rate be on the bonds?
Use Excel ($74.91)/($1000)= 7.49%
Assume the nominal rate was 11.50% and the inflation rate was 3%. Using the Fisher Effect, what was the real rate? 8.25% 11.50% 9.10% 9.90% 8.1%
1+R=(1+r)x(1+h) 1+0.115=(1+r)x(1+0.03) 1.115=(1+r)x(1.03) 1.0825=(1+r) 0.0825=r r=8.25%
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.5 percent paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond?
Current price = Coupon [1 - 1 /(1 + r)^n] / r + FV /(1 + r)^n CP=(0.065x1,000)[1-1/(1.076)^15]/0.076+1,000/(1.076)^15 CP= $903.50
The Fisher Effect has all of the following components, except: Compensation for Inflation on Investment Earned Compensation for Inflation of Original Investment, h Expected Rate of Return, E Real Rate on the Investment, r
Expected Rate of Return, E
Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called? Discount Face value Yield Coupon Dirty price
Face value
Current Yield is the bond's annual coupon divided by its yield to maturity. True or False
False Current Yield=Bond's Annual Coupon/Bond Price
You find a zero coupon bond with a par value of $10,000 and 15 years to maturity. If the yield to maturity on this bond is 4.4 percent, what is the price of the bond? Assume semiannual compounding periods. $5,055.11 $5,205.63 $4,989.64 $5,093.60 $4,867.24
Price of bond=Par value/(1+YTM/2)^(2*time period) Price of Bond=10,000/(1+0.044/2)^(2x15) Price of bond=10,000/(1.022)^(30) =$5,205.63
Say you own an asset that had a total return last year of 12 percent. If the inflation rate last year was 7.5 percent, what was your exact real return?
R+1=(1+r)x(1+h) 1.12=(1+r)x(1.075) 1.04186=1+r r=4.19%
Suppose you buy a 7 percent coupon, 20-year bond today when it's first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? The price of the bond will fall.The price of the bond will rise.
The price of the bond will fall.
McConnell Corporation has bonds on the market with 10 years to maturity, a YTM of 9.8 percent, a par value of $1,000, and a current price of $1,256.50. The bonds make semiannual payments. What must the coupon rate be on these bonds? 13.98% 13.88% 22.19% 27.88% 11.05%
Use Excel ($69.41+$69.41)/($1000)= 0.13882 or 13.88%
Randall's Robots has bonds outstanding with 13 years to maturity, make annual interest payments, have a par value of $1,000, and are currently selling for $880. At this price the bonds yield 11 percent. What must the coupon rate be on the bonds? 7.78% 8.31% 9.22% 8.86% 10.0%
Use Excel ($92.22)/($1,000)= 0.09222 or 9.22%
Which one of these equations applies to a bond that currently has a market price that exceeds par value? Current yield > Coupon rate Market value < Face value Yield to maturity = Current yield Yield to maturity < Coupon rate Market value = Face value
Yield to maturity < Coupon rate
Treasury bills are currently paying 9 percent and the inflation rate is 3.1 percent. a. What is the approximate real rate of interest? b. What is the exact real rate?
a) r=R-h r= 5.9% b) R+1=(1+r)x(1+h) 1.09=(1+r)x(1.031) 1.0572=1+r r=5.72%
Wesimann Co. issued 11-year bonds a year ago at a coupon rate of 8.3 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.6 percent, what is the current bond price?
https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html $1,123.02
Chubb Co. issued 8-year bonds two years ago at a coupon rate of 9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6 percent, what is the current bond price? $1,252.16 $1,149.31 $1,186.34 $1,140.39 $1,205.16
https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html $1,149.31
West Corp. issued 16-year bonds 2 years ago at a coupon rate of 9.7 percent. The bonds make semiannual payments. If these bonds currently sell for 96 percent of par value, what is the YTM? 11.27% 10.24% 5.12% 12.29% 9.22%
https://goodcalculators.com/bond-yield-to-maturity-calculator/ 10.24%
Cooks Creek issued $1000 par value, 17-year bonds 2 years ago at a coupon rate of 10.8 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM? 11.22% 11.36% 10.88% 11.00% 11.64%
https://goodcalculators.com/bond-yield-to-maturity-calculator/ 11.22%
Warren Corporation is interested in a three-year, 11% annual coupon bond. A broker quotes a price of $930.35. What is the yield to Maturity? 11% 10% 13% 12% 14%
https://goodcalculators.com/bond-yield-to-maturity-calculator/ 14%
Yan Yan Corp. has a $3,000 par value bond outstanding with a coupon rate of 4.8 percent paid semiannually and 19 years to maturity. The yield to maturity on this bond is 4.9 percent. What is the price of the bond?
https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html $2,963.18
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the: market price of the bond will decrease. coupon rate will also increase. current yield will decrease. coupon payment will increase. yield to maturity will be less than the coupon rate.
market price of the bond will decrease.
