Finance 3000 Midterm Hegger All HW Qs

What's the current yield of a 4.10 percent coupon corporate bond quoted at a price of 101.68?

4.10% / 101.68% = 0.0403 = 4.03%.

What's the current yield of a 4.80 percent coupon corporate bond quoted at a price of 96.38?

4.80% / 96.38% = 0.0498 = 4.98%.

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.3 percent for an investor in the 28 percent marginal tax bracket?

Equivalent taxable yield=Muni yield1− Tax rate=3.3%/1− 0.28=4.58%

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.0 percent for an investor in the 33 percent marginal tax bracket?

Equivalent taxable yield=Muni yield1− Tax rate=4.0%/1− 0.33=5.97%

A 7.90 percent coupon bond with 13 years left to maturity is priced to offer a yield to maturity of 8.6 percent. You believe that in one year, the yield to maturity will be 8.2 percent. What is the change in price the bond will experience in dollars?

Explanation TVM calculator: N = 26, I = 4.30, PMT = 39.50, FV = 1,000, CPT PV = −945.84 TVM calculator: N = 24, I = 4.10, PMT = 39.50, FV = 1,000, CPT PV = 977.36 So, the dollar change in price is:$977.36 − $945.84 = $31.52.

A 5.8 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 + 0.058 × $1,000 = $1,058.

A 5.40 percent coupon bond with 15 years left to maturity can be called in five years. The call premium is one year of coupon payments. It is offered for sale at $1,075.70. What is the yield to call of the bond? (Assume interest payments are semiannual.)

TVM calculator: N = 10, PV = −1,075.70, PMT = 27.00, FV = 1,054.00, CPT I = 2.329%. YTC = 2.329% × 2 = 4.66%.

A 7.00 percent coupon bond with 26 years left to maturity can be called in seven years. The call premium is one year of coupon payments. It is offered for sale at $1,065.35. What is the yield to call of the bond? (Assume interest payments are semiannual.)

TVM calculator: N = 14, PV = - 1,065.35, PMT = 35.00, FV = 1,070.00, CPT I = 3.310%. YTC = 3.310% × 2 = 6.62%.

A 4.90 percent coupon bond with 17 years left to maturity is offered for sale at $974.31. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

TVM calculator: N = 34, PV = −974.31, PMT = 24.5, FV = 1,000, CPT I = 2.564%. YTM = 2.564% × 2 = 5.13%.

A 7.35 percent coupon bond with 20 years left to maturity is offered for sale at $1,025.00. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

TVM calculator: N = 40, PV = −1,025.00, PMT = 36.75, FV = 1,000, CPT I = 3.557%. YTM = 3.557% × 2 = 7.11%.