School

Texas Tech University **We aren't endorsed by this school

Course

BA 3303

Subject

Finance

Date

Oct 23, 2023

Pages

5

Uploaded by cochisemtz on coursehero.com

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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