Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 3, Problem 1PS

a)

Summary Introduction

To discuss: The effects on bonds coupon rates if the yield to maturity increases after the issue of the T bonds.

b)

Summary Introduction

To discuss: The effects on bonds price if the yield to maturity increases after the issue of the T bonds.

c)

Summary Introduction

To discuss: The effects on bonds yield to maturity if the yield to maturity increases after the issue of T bonds.

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1. Bond prices and yields (S3.1) A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. If interest rates increase shortly after the bond is issued, what happens to the bond's a. Coupon rate? b. Price? c. Yield to maturity?
Question 1. Duration and Banking Consider a 5-year bond with annual coupon payments. The bond has a face value (prin- cipal) of $100 and sells for $95. Its coupon rate is 3%. (The coupon rate is the ratio between the coupon value and the face value). The face value is paid at the maturity year in addition to the last coupon payment. 1. Calculate the bond's yield to maturity (YTM) and duration using its YTM. 2. Suppose the bond's YTM changes in the same way as a 5-year T-bill interest rate. Use the bond's modified duration to evaluate the relative change in the 5-year bond's value if the interest rate on 5-year T-bills falls by one basis point, that is, by 0.0001. This part was extracted from the balance sheet of the First Bank of Australia: Assets (Billion AUD) Bond 80 Liabilities (Billion AUD) Fixed-rate liabilities 60 where "Bond" here refers to the bond we specified above and the fixed-rate liabilities (banks future payment obligations) have an average duration of 4 years and YTM of…
Thebond shown in the following table pays interest annually.   Par value Coupon interest rate Years to maturity Current value ​$1,000 8​% 9 ​$700   a. Calculate the yield to maturity (YTM​) for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a​ bond? Explain.

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Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)

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