Final (Chapter 6)

Stein Co. issued 15-year bonds two years ago at a coupon rate of 5.4 percent. The bonds make semiannual payments. If these bonds currently sell for 94 percent of par value, what is the YTM?

3.037%

Maturity

years until the bond must be repaid

Bond P is a premium bond with a coupon rate of 8.5 percent. Bond D is a discount bond with a coupon rate of 5.5 percent. Both bonds make annual payments, have a YTM of 7 percent, a par value of $1,000, and have five years to maturity. What is the current yield for Bond P? For Bond D? If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond P? For Bond D? Explain your answers and the interrelationships among the various types of yields.

$1,061.50

Harrison Co. issued 15-year bonds one year ago at a coupon rate of 6.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current dollar price assuming a $1,000 par value?

$1,078.37

Union Local School District has bonds outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on these bonds is 3.9 percent and the bonds have a par value of $5,000. What is the price of the bonds?

$4,881.80

Lycan, Inc., has 7 percent coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 8.4 percent, what is the current bond price?

$913.98

yield to maturity

- The market required rate of return bonds of similar risk and maturity -The discount rate used to value a bond -return if bond held to maturity Usually= coupon rate at issue

As interest Rate increas

-Present Value Decrease -Bond Prices Decrease and vice versa

Bond Ratings

-high grade: capacity to pay is extremely Strong -medium grade: Capacity to pay is strong, but more susceptible to changes in circumstances -low grade: -very low grade

The Timberlake-Jackson Wardrobe Co. has 7 percent coupon bonds on the market with 9 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $961.50, what is the YTM?

7.61%

Consider a bond with a 10% annual coupon rate, 15 years to maturity and a par value of $1000. The current price is $928.09. Will the yield be more or less than 10%

More; 11%

Bond Value

PV of coupons + PV of par PV of annuity + PV of lump sum