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- Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?Problem #4: A corporation issues a 20 year bond with the final redemption value equal to the face value of $1000, and semiannual coupons of 10%. However, the bond is callable at the end of 10 years at $1100, and at the end of 15 years at $1040. What is the price of the bond if the investor's yield (the "yield-to-worst") is 7.5%?Your Mark: Problem #4: A corporation issues a 20 year bond with the final redemption value equal to the face value of $1000, and semiannual coupons of 11.5%. However, the bond is callable at the end of 10 years at $1100, and at the end of 15 years at $1040. What is the price of the bond if the investor's yield (the "yield-to-worst") is 8.5%? Problem #4 Answer correct to 2 decimals.
- Suppose the investor sells his bonds before maturity and uses some of the proceeds to purchase a zero-coupon T-Bill with a $100 face value and 6-month maturity. What is the effective annual rate (EAR) if it was purchased for $95.52?Suppose your organization has issued a 30 year, 1,000,000 par-value bond with semi-annual coupons of 7%.25 years after issuance the owner of the bond offers to let your organization redeem the bond early. You can turn down the offer and redeem after 30 years. 1. Should you take the offer if:(a) the market interest rate is 6.5%(b) the market interest rate is 7.5%(c) the market interest rate is 7%(d) the market interest rate is 6.5% and redemption today requires a redemption of 1,200,000 2. What general rule for early redemption can you make?Suppose your organization has issued a 30 year, 1,000,000 par-value bond with semi-annual coupons of 7%.25 years after issuance the owner of the bond offers to let your organization redeem the bond early. You can turn down the offer and redeem after 30 years. 1. Should you take the offer if: the market interest rate is 6.5% 2. Should you take the offer if: the market interest rate is 7.5% 3. Should you take the offer if: the market interest rate is 7% 4. Should you take the offer if: the market interest rate is 6.5% and redemption today requires a redemption of 1,200,000 5. What general rule for early redemption can you make? Sidenote: Show calculations
- Assume you purchase (at par) one 11-year bond with a 6.95 percent coupon and a $1,000 face value. Suppose you are only able to reinvest the coupons at a rate of 4.95 percent. If you sell the bond after 6 years when the yield to maturity is 7.95 percent, what is your realized yield? (Do not round intermediate calculations. Round your answers to 2 decimal places.) FV $ 1,018.53 Selling price 960.02 Realized yield $ 5.30 %CASE2: A 10-year 10 percent semiannual coupon bond, with a par value of $1,000, may be called in 4 years at a call price of $1,160. The bond sells for $1,200. (Assume that the bond has just been issued.) What is the bond's yield to maturity? What is the bond's current yield? What is the bond's capital gain or loss yield? What is the bond's yield to call? How would the price of the bond be affected by changing interest rates? (Hint: Conduct a sensitivity analysis of price to changes in the yield to maturity, which is also the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification but assume it anyway for purposes of this problem.)only do B A)You buy a 6 year bond with an annual 8% coupon at par value, $1000. If the yield to maturity at the end of the first year falls to 5% or jumps to 10% what is the end of the year value of the bond(after the coupon payment, so bond value does not include this coupon)? B) Calculate your holding period return.
- A bond that has features: coupon of rate of 5 percent principal: $1,000 term to maturity: 10 years a. what will the holder receive when the bond matures? b. if the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? would you expect the firm to call this bond? why? c. if the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the fundas earn 8 percent annually and there is $100 million oustanding?1. A three-year bond with a $1,000 face-value and 10% coupon rate is sold for $1,000 today (Year 1). If one year later (Year 2) the market interest rate decreases by 5%, then this bond will have a market price of $ ____ (round UP to the nearest integer) next year (Year 2). 2. True or False? The current interest rate on a 10-year coupon bond with face value = $1,000 and annual coupon rate = 3.25% is2.42%. This implies the buyer of the bond will receive a $24.2 payment from the bond issuer every year before maturity while holding the bond. 3. A three-year bond with $1,000 face-value and 10% coupon rate is sold for $1,000 today (YEAR 1). If one year later (Year 2) the market interest rate increases by 5%, then this bond will have a market price of $ ________ (round UP to the nearest integer) then (Year 2).1. A two-year bond with $1,000 face-value and 10% coupon rate is sold for $1,000 today (Year 1). If one year later (Year 2) the market interest rate decreases by 5%, then this bond will have a market price of $ ____ (round UP the nearest integer) next year (Year 2). 2. Using the one-period valuation model, assuming a year-end dividend of $11.00, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be $ ________. 3. Last year you purchased a bond with an interest rate of 5 percent. Now the interest rate on the bond market drops to 4%. Then People can use a lower price to buy your bond today. (True or False)