Bond Part 2 Assignment iam done

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Texas Tech University **We aren't endorsed by this school
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BA 3303
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Finance
Date
Oct 23, 2023
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Bond Module Part 2 Assignment / Test Prep 1. What is meant by "yield to maturity" on a bond? -YTM, yield to maturity, is the estimate of investor return on the bond if purchased at today's price and held to maturity. 2. What is meant by "current yield" on a bond? -Current yield is the annual coupon divided by bond price. 3. What is the value of a bond that has a par value of $1,000, a coupon of $120 (annually), and matures in 10 years? Assume a required rate of return of 7.02%. A. $1,198.45 B. $1,200.78 C. $1,284.38 D. $1,349.45 4 .What is the value of a bond that matures in 5 years, has an annual coupon payment of $110, and a par value of $1,000? Assume a required rate of return of 8.69%. A. $938.50 B. $1,090.58 C. $1,115.45 D. $1,049.83 5. FYI bonds have a par value of $1,000. The bonds pay $40 in interest every six months and will mature in 10 years. A. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. 7% YTM price = $1,071.06 8% YTM price = $1,000.00 9% YTM price = $934.96 B. Explain the impact on price if the required rate of return decreases. -The price of the bond will increase. C. Compute the coupon rate on the bonds. How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will compare to it par value? -Coupon rate = ($40 × 2)/$1,000 = 8%
6. A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965. The yield to maturity is A. 10.49%. B. 10.00%. C. 8.87%. D. 6.50%. 7. What is the yield to maturity of a corporate bond with 13 years to maturity, a coupon rate of 8% per year, a $1,000 par value, and a current market price of $1,250? Assume semiannual coupon payments. A. 4.2% B. 4.7% C. 6.0% D. 5.3% 8. A corporate bond has a coupon rate of 9%, a face value of $1,000, a market price of $850, and the bond matures in 15 years. Therefore, the bond's yield to maturity is A. 9%. B. 24%. C. 11.1%. D. 13.45%. 9. Messenger, Inc. bonds have a 4% coupon rate with semiannual coupon payments and a $1,000 par value. The bonds have 11 years until maturity, and sell for $925. What is the current yield for Messenger's bonds? A. 2.16% B. 3.45% C. 4.32% D. 5.52% 10. If market interest rates rise A. short-term bonds will decline in value more than long-term bonds. B. short-term bonds will rise in value more than long-term bonds. C. long-term bonds will decline in value more than short-term bonds. D. long-term bonds will rise in value more than short-term bonds.
11. Use the chart of bonds below. Assume semi-annual coupon payment and par value of $1,000. Note maturity date. Today's date is 4.1.2019 ISSUER COUPO N MATURITY MOODY' S S&P LAST PRICE Big Car Auto Parts 5 4.1.2025 Baa2 BBB- 950.00 Walgreen's 4.5 4.1.2025 Aa1 AA+ 1015.0 0 Last Chance National Mortgage 7.5 4.1.2027 A3 A 1175.00 A. What is the current yield for the Big Car Auto Parts bond? 5.26% B. What is the current yield for the Walgreen's bond? 4.43% C. What is the current yield for the Last Chance National Mortgage bond? 6.38% D. What is the Yield to maturity for the Big Car Auto Parts bond? 6.00% PV= -950 FV=1,000 PMT = 25 n = 12 solve for I/YR E. What is the Yield to maturity for the Walgreen's bond? 4.21% PV= -1,015 FV=1,000 PMT = 22.5 n = 12 solve for I/YR F. What is the Yield to maturity for the Last Chance National Mortgage bond? 4.84% PV= -1,175 FV=1,000 PMT = 37.5 n = 16 solve for I/YR 12. Find the following bond prices: a. A bond with $1000 par value, semi-annual coupon rate of 8%, YTM of 9% that matures in 5.5 years. $ _______-957.36____________ b. What if the previous bond matures in 20 years? $______-907.99_____________ c. A bond with a 10% annual coupon rate, YTM of 6% that matures in 10 years? $_____-1294.40______________ d. A bond with a 6% quarterly coupon payment, YTM of 8% that matures in 9 years.
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