PROBLEM 4 03/15/22 03/15/37 6.00% Settlement Date Maturity Date Coupon Rate Required Return (ΥT ) Face Value 7.50% 1000 Semi-Annual Interest Payment Frequency Basis a) Given the Yield to aturity (YTM); calculate e price of the bond using RICE' function in Excel. (b) Calculate the "Duration" of the bond NO
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- The following information about bonds A, B, C, and D are given. Assume that bond prices admit noarbitrage opportunities. What is the convexity of Bond D?Cash Flow at the end ofBond Price Year 1 Year 2 Year 3A 91 100 0 0B 86 0 100 0C 78 0 0 100D ? 5 5 105ANSWER AS MANY QUESTIONS POSSIBLE THIS IS A STUDY GUIDE Ch 11 Bonds and LTL1. When will bonds sell at a premium and discount? 2. Calculate bond interest under SL method.3. Impact of amortization of bond premium/discount on interest expense.4. Give an example journal entry for amortization of bond premium/discount.5. What is the Gain/loss on redemption of bonds? How do you calculate?6. Understand method of calculating PV of future cash flows -specifically for a bond.7. Why are bonds a popular source of financing?8. Contract rate (market rate) is used for what calculation purpose?Ch 10 SE: Corporations1. What are Rights possessed by common stockholders?2. What are a journal entries for stock issuance, cash dividend, stock dividend?3. What is the calculation of dividends when cumulative preferred stock is outstanding?4. Journal entries for treasury stock, financial statement presentation. Gain/loss on reissue of treasury stock.5. Prior period adjustment - example of, accounting for?6.…Comment on the attractiveness of the bonds in two ways: a) How does the yield compare to the benchmark? Market YTM: 3.62% YTM of bond: 3.72% b) How does the current price compare to the benchmark-yield implied price? Price: 100.875 Implied price: 100.923
- e calculate the prices for bonds A-D and the yields for bonds D-G. Coupon Par Value Cash flows: Market price Yield Ꭰ E F G 6.00% 6.70% 5.40% 0.00% 1,000 (757) (813) (799) (505) 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0Calculating the risk premium on bonds The text presents a formula where (1+1) = (1-p)(1 +i+x) + p(0) where i is the nominal interest rate on a riskless bond x is the risk premium p is the probability of default (bankruptcy) If the probability of bankruptcy is zero, the rate of interest on the risky bond is When the nominal interest rate for a risky borrower is 8% and the nominal policy rate of interest is 3%, the probability of bankruptcy is %. (Round your response to two decimal places.) When the probability of bankruptcy is 6% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) When the probability of bankruptcy is 11% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) The formula assumes that payment upon default is zero. In fact, it is often positive. How would you change the formula in this case?…Calculate the yield to maturity for each bond and discuss whether it sells at par, discount, or premium? O A. Bond YTM A O B C O B. Bond A B с C. Bond A B C с O D. Bond A B с 12.71% Discount 12.00% 10.22% YTM Sells at par/discount/premium YTM Premium Discount Sells at par/discount/premium Discount 12.71% 12.00% Par 10.22% Premium Sells at par/discount/premium Premium 12.71% 12.00% Par 10.22% Premium Sells at par/discount/premium Discount YTM 10.22% 12.00% Par 12.71% Premium Bond Par value Coupon interest rate $1000 9% $1000 12% $500 A B C 12% Years to maturity 18 16 12 Current value $820 $1000 $560
- Assume a face value of a bond JD 1000, when the bond reaches maturity, if it is selling at:a. JD 900, bond value goes down to JD 850b. JD 1000, bond value goes down to JD 900c. JD 1100, bond value goes up to JD 1200 d. JD 1050, bond value goes down to JD 10002-a bonds future payments are called its Please select one; a) cash flows b) maturity values c) discounted present values d) yields to maturity e) future value www wAcme Chemical, Inc. is a major manufacturer of chemical products for the agricultural ndustry, including pesticides, herbicides and other compounds. Due to a number of law suits elated to toxic wastes, Acme Chemical has recently experienced a market re-evaluation of its common stock. The firm also has a bond issue outstanding with 10 years to maturity and an annual coupon rate of 5 percent, with interest paid semi annually. The required nominal market annual interest rate on this bond has now risen to 10 percent due to the high risk level associated vith this firm. The bonds have a par or face value of $1,000. 1. Label each of the variables that you would use to determine the value of this bond in the market today: N (time periods until maturity) PMT (periodic interest payment) I per (periodic market interest rate) EV (future value to be received when the bond matures) = 2. Based on the variables that you have identified in Question #1, what is the market value. today (the present…
- Q15 Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay? Multiple Choice maturity date time to maturity value par or face value call premiumWhen the bond reaches its ______ the company repays the / its _______ maturity date; creditor payment due: interest amortization due: coupon rate all of the choices maturity date investorThank You