Chapter 7 Homework

A 2.60 percent coupon municipal bond has 10 years left to maturity and has a price quote of 95.25. The bond can be called in four years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5,000.) for an investor in the 30 percent marginal tax bracket

Current Yield= 2.60/95.25= 2.73% Yield to Maturity= N= 20 I= ? PV= 5,000 X .9525= 4,762.5 Pmt= (5,000 x .0260/2)= 65 FV= 5,000 YTM= 1.5788 x 2= 3.16% Equivalent Taxable Yield= 3.16/1-.3= 4.51% Yield to Call= N= 8 I= ? PV= 5,000 X .9525= 4,762.5 Pmt= (5,000 x .0260/2)= 65 FV= 5,000 + (5,000 x .026)= 5,130 YTC= 2.256% x 2= 4.51%

What's the current yield of a 4.60 percent coupon corporate bond quoted at a price of 102.18? (Round your answer to 2 decimal places.)

Current Yield= Annual Coupon/Bond Price 4.60/102.18 = 4.50%

What's the current yield of a 4.80 percent coupon corporate bond quoted at a price of 96.38? (Round your answer to 2 decimal places.)

Current Yield= Annual Coupon/Bond Price 4.80% / 96.38% = 0.0498 = 4.98%

Determine the interest payment for the following three bonds. (Assume a $1,000 par value.) (Round your answers to 2 decimal places.) -4.85 percent coupon corporate bond (paid semiannually) -5.50 percent coupon Treasury Note -Corporate zero-coupon bond maturing in 10 years

24.25 27.50 0

A bond issued by IBM on December 1, 1996, is scheduled to mature on December 1, 2096. If today is December 2, 2018, what is this bond's time to maturity? (Use 365 days a year.)

78 years

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.1 percent for an investor in the 28 percent marginal tax bracket? (Round your answer to 2 decimal places.)

Equivalent Taxable Yield= Muni yield/1-tax rate 4.1/1-.28= 5.69%

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 5.5 percent for an investor in the 33 percent marginal tax bracket? (Round your answer to 2 decimal places.)

Equivalent Taxable Yield= Muni yield/1-tax rate 5.5/1-.33= 8.21%

A 6.55 percent coupon bond with 25 years left to maturity can be called in six years. The call premium is one year of coupon payments. It is offered for sale at $1,105.45. What is the yield to call of the bond? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

N= 6 x 2= 12 I= ? PV= 1,105.45 Pmt= 1,000 x .0655/2= 32.75 FV= 1,000 + (1,000 x .0655) = 1,065.5 I= 2.704 x 2= 5.41%

A corporate coupon bond of 7.9 percent is callable in five 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 + (.079 x 1,000)= $1,079

A 4.7 percent corporate coupon bond is callable in 10 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 + 0.047 × $1,000 = $1,047

A bond issued by Ford on May 15, 1997 is scheduled to mature on May 15, 2097. If today is November 16, 2010, what is this bond's time to maturity? (Use 365 days a year.)

Time to Maturity= 86 years and 6 months

Consider the following three bond quotes: a Treasury note quoted at 97.750, a corporate bond quoted at 103.75, and a municipal bond quoted at 102.40. 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.)

Treasury Bond = 977.50 Corporate Bond= 1,037.50 Municipal Bond= 5,120.00

Consider the following three bond quotes: a Treasury bond quoted at 106:26, a corporate bond quoted at 96.45, and a municipal bond quoted at 100.85. 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.)

Treasury Bond= 1,068.13 Corporate Bond= 964.50 Municipal Bond= 5,042.50

A 6.55 percent coupon bond with 15 years left to maturity is priced to offer a yield to maturity of 8.1 percent. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

N= 30 I= 4.05 PV= ? Pmt= 1,000 x .0655/2= 32.75 FV= 1,000 PV= 866.80 N= 28 I= 3.5 PV= ? Pmt= 32.75 FV= 1,000 PV= 960.25 960.25 - 866.80= $93.45

Compute the price of a 5.9 percent coupon bond with 15 years left to maturity and a market interest rate of 7.0 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

N= 30 I= 7/2= 3.5 PV= ? Pmt= 1,000 X .059/2 = 29.50 FV= 1,000 PV= $898.84 DISCOUNT BOND

A 6.55 percent coupon bond with 19 years left to maturity is offered for sale at $1,125.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

N= 19x2= 38 I= ? PV= 1,125.25 Pmt= 1,000 x .0665/2= 37.75 FV= 1,000 I= 2.740 x 2= 5.48%

Compute the price of a 5.2 percent coupon bond with 10 years left to maturity and a market interest rate of 8.2 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

N= 20 I= 8.2/2= 4.1 PV= ? Pmt= (1,000 x .052)/2= 26 FV= 1,000 PV= 797.94 DISCOUNT BOND -> less than $1,000

Calculate the price of a zero-coupon bond that matures in 15 years if the market interest rate is 3.5 percent. Assume semiannual compounding. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

N= 30 I= 3.5/2= 1.75 PV= ? Pmt=0 FV= 1,000 PV= 594.25

A 7.15 percent coupon bond with 18 years left to maturity is offered for sale at $1,055.30. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)

N= 36 I= ? PV= 1,055.30 Pmt= 1,000 x .0715/2= 35.75 FV= 1,000 I= 3.310% x 2= 6.62%