Problem 6-15 (LG 6-2) A $2,000 face value corporate bond with a 5.9 percent coupon (paid semiannually) has 13 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 6.4 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 7.5 percent. What will be the change in the bond's price in dollars and percentage terms? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your percentage answers to 3 decimal places. (e.g., 32.161)) Change in the bond's price in dollars Change in the bond's price in percentage %
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- Problem 10-27 (Algo) A 10-year bond of a firm in severe financial distress has a coupon rate of 10% and sells for $900. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. Required: What are the stated and expected yields to maturity of the bonds? The bond makes its coupon payments annually. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stated yield to maturity Expected yield to maturity 13.91 % 7.45 %Problem 6-32 Credit Risk (LO4) a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.4%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 12%. What is the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 82% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)Task 3: CMBS (1) Why are bond rating agencies so vital in the MBS market? (2) Consider a $100 million loan pool, packaged, and sold in securities of $1,000 each. The loans in the pool have five years to run, a 9% interest rate, they are fully amortizing, and there is no prepayment or default. The loan servicing charge is 1.5% of the loan balance outstanding. a. If you want to offer a security at a yield of 10.5%, what is the price of the security? 6. for correct cash flows, 1 for correct price) b. What discount does that represent to the face value of the security? e, (3) A mortgage pool has $1 billion in par value. The senior (A) tranche has 30% credit support (subordination). The next tranche (B) has 25% credit support (subordination). a. How much par value (principal) was issued in the A tranche?? b. How much par value (principal) was issued in the B tranche? 1
- a. b. C. Problem 9.4: R & J, Inc. issues a 10-year $1,000 bond that pays $28.50 semi-annually. The market price for the bond is $975. The market's required yield to maturity on a comparable-risk bond is 6 percent. a. What is the value of the bond to you?. b. What happens to the value if the market's yield to maturity on a comparable-risk bond (i) increases to 8 percent or (ii) decreases to 4 percent? c. Under which of the circumstances in parts a & b should you purchase the bond? Years Par (FV) PMT Nper m Comparable risk (Rate) Bond value (PV) Comparable risk (Rate) Bond value (PV) Comparable risk (Rate) Bond value (PV)Problem 6-31 Credit Risk (LO5) Suppose that Casino Royale has issued bonds that mature in 1 year. They currently offer a yield of 28%. However, there is a 50% chance that Casino will default and bondholders will receive nothing. What is the expected yield on the bonds? Note: Input the amount as a positive value and as a percent rounded to 1 decimal place. Expected yield is a of %Problem 6-30 Credit Risk (LO4) a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to maturity of 5.6%. Now, with 5 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 13%. What is now the price of the bond? (Assume semiannual coupon payments.) Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Bond price b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 82% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Yield to maturity %
- Can you please walk me through this? Problem 6-11 DEFAULT RISK PREMIUM A company’s 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5 2% per year, and the real risk-free rate (r*) is 2.3%. The average inflation premium is 2 5%; and the maturity risk premium is estimated to be 0.1 x (t 1) %, where t = number of years to maturity. If the liquidity premium is 1%, what is the default risk premium on the corporate bonds?Question 2 (a) Paris Corporation issue Bond Mars which pays a coupon rate of 8% compounded semi- annually, with a maturity period of 10 years. The face value of the bond is $1,000 with an 10% yield to maturity. 2 years later, the bond's yield dropped to 7% due to a recession in the economy. You are required to calculate the value of Bond Mars before the recession and during recession. Furthermore, briefly describe the changes to the bond's value.Problem 2 (Required, 25 marks) We consider a 5-year straight term bond issued today. The bond pays coupon quarterly and the current annual effective yield rate is i = 7.1859%. You are also given that The current bond price is 2167.529. The clean price of the bond at the end of 15th month is 2130.929. Assuming that the yield rate remains unchanged over these 5 years, find the clean price of the bond at the end of 22nd month.
- Problem 07.046 - IRR of a bond purchased at discount rate A mortgage bond issued by Automation Engineering is for sale for $8,700. The bond has a face value of $10,000 with a coupon rate of 7% per year, payable quarterly. What rate of return will be realized if the purchaser holds the bond to maturity 8 years from now? The rate of return will be 11% per year.Question You want to buy Wolfuman Inc.'s semi-annual bonds that pay a 4.9% coupon rate. They have 6 years to maturity and a discount rate of 10.2%. How much would you need to pay per bond? $799 $833 $733 $766 Question Mandol Lin Inc. has outstanding bonds worth $812, and making semi-annual payments of $25 with five years to maturity. What is the coupon rate? 6.4% 5.0% 2% 2.5%Problem 3. Larga Industries has outstanding $1,000 par value bond with an 8% coupon interest rate. The bond has 12 years remaining to its maturity date. a. If the interest is paid annually, find the value of the bond when the required return is (1) 7%, (2) 8%, (3) 10%. Indicate for each case in part whether the bond is selling at a discount, at a premium, or at its par value. c. Using the 10% required return, find the bond's value when interest is paid semi-annually. b.