Q1 (a) Explain FOUR (4) reasons that influence the changes which make debt security yields vary. (b) If a government bond is expected to mature in two years and has a current price of RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000 and a promised coupon payment rate of 10%. (c) From part (b) above, illustrate how the bond price/value if the interest rate/yield moves up (increase).

Q1 (a) Explain FOUR (4) reasons that influence the changes which make debt security yields vary. (b) If a government bond is expected to mature in two years and has a current price of RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000 and a promised coupon payment rate of 10%. (c) From part (b) above, illustrate how the bond price/value if the interest rate/yield moves up (increase).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 20P

See similar textbooks

Similar questions

Question 2 a) What are the main characteristics of a bond? Provide examples of different types of bonds in terms of coupons and maturity. b) Explain the difference between "coupon rate" and "yield to maturity", Show, using examples, how changes in the coupon rate and yield to maturity affects the bond price. c) You are asked to put a value on a bond which promises eight annual coupon payments of £50 and will repay its face value of £1000 at the end of eight years. You observe that other similar bonds have yields to maturity of 9 per cent. i) i) How much is this bond worth? (" You are offered the bond for a price of £755.5. What yield to maturity does this represent? d. You believe that next year XYZ plc will pay a dividend of £2 on its common stock Thereafter you expect dividends to grow at a rate of 4% a year in perpetuity. If you require a return of 12% on your investment. i. How much should you be prepared to pay for the stock? ii. Assuming that the expected stock price at the end…
4. We can define bond as a financial device through which a borrower (a firm or government) is obligated to pay the principal and interest on a loan at specific dates in the future. Answer questions relating to interest rates and bond prices using the following information: The price of a bond with no expiration date is $1000 and its fixed annual interest payment is $50; bond annual rate of interest is 5%. (a) If the price of this bond decreases by $250 to $750, what will its effective interest rate be for the new buyer? %, because (b) If the price of this bond increases to $1200, what will its effective interest rate be for the new buyer? (c) When bond prices go up from (a) to (b), interest rates go (up, down, nowhere). %, because
Q3) The Omani Company has two bond issues outstanding. Both bonds pay OMR (100) annual interest plus OMR (1000) face value at maturity. Bond L has a maturity of 15 years, sell after three years issued, and Bond S has a maturity of 1 year. What will be the value of each of these bonds when the going rate of market interest is 12%? what can you conclude from the results of the above questions regarding the bond risks?
(b) If a government bond is expected to mature in two years and has a current priceof RM950, calculate the bond's interest rate/yield if it has a par value of RM1,000and a promised coupon payment rate of 10%. Please give calculation step by step.(c) From part (b) above, illustrate how the bond price/value if the interest rate/yieldmoves up (increase).
round the following information: Government bonds: \table [[Maturity, Yield], [1,1% round the following information: Government bonds: Maturity Yield 1 1% 2 2.2% 3 3% 4 5% BB Bonds: Maturity Yield 1 6% 2 8% 3 11% 4 17% Draw the credit spread curve. If you know that the market is assuming a constant recovery rate for all maturities, What must be their assumption for the probability of default?
D3) Currently, the market interest rate on a bond is 10%. Yield-to-Maturity is a return you can reliaze when you are investing in a bond until its maturity. If you decide to sell the bond before the maturity, what would be your realized return like? and why?
You are given the following details of three default free government bonds. Assume that one can take long (buy) and short (sell) positions in these bonds. CF stands for cash flow. Bond Current price Today CF Year 1 CF Year 2 A 95.24 100 0 B 89.85 0 100 C X 70 1070 Assuming that the current market prices of Bond A and Bond B are correct, then, what should be the current theoretical (fundamental) price of Bond C, as per the no-arbitrage principle, i.e., what is the value of X? [Do not round-off any numbers. If at all you want to round-off a number, round it off at 8 decimal places.]
Suppose that y is the yield on a perpetual government bond that pays interest at the rate of $1 per annum. Assume that y is expressed with simply com- pounding, that interest is paid annually on the bond, and that y follows the process dy = a(y0 −y)dt + oydWt, where a, y0, and o are positive constants and dWt is a Wiener process. (a) What is the process followed by the bond price? (b) What is the expected instantaneous return (including interest and capital gains) to the holder of the bond?
Answer number 1 and 2: 1.) Suppose the yield on a 10-year T-bond is currently 5.05% and that on a 10-year Treasury Inflation Protected Security (TIPS) is 2.15%. Suppose further that the MRP on a 10-year T-bond is 0.90%, that no MRP is required on a TIPS, and that no liquidity premium is required on any T-bond. Given this information, what is the expected rate of inflation over the next 10 years? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. 2.) Koy Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Koy's bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t − 1) × 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Koy's bonds?
Assuming the bonds are trading at face value. Using the table below, what is the required rate of return on debt? Security Security #1 Security #2 Security #3 Security #4 4.1% 3.9% O 5.9% 3.3% Face Value $5,000,000 $6,000,000 $4,000,000 $5,000,000 Coupon 8% 2% 9% 6% YTM 4.0% 4.5% 3.8% 4.1%
Vi (H X.) 25) A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a A) fixed-payment loan. C) simple loan. B) coupon bond. D) discount bond. 25) Pr
a) Determine the price of Bond X if it has 3 years to maturity, a par-value of $2500, a coupon rate of 5% paid annually and the rate of return in the bond market is fixed at 9%: (b) Hence, compute the duration of Bond X from Question 2(a) above. (c) List and explain one type of risk associated with bonds. 164 words 1284 MAR 12 MacBook Air D00 F1 F2 F3 F4 & 2$ 4 6 Q W