PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 3, Problem 4PS
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Treasury bond issued by U.S. government has 7 years of maturity. Coupon rate is 6%
paid annually, Face value is $1000 and yield to maturity (Kd) equals 5%.
1. What is the price of bond (VB)? Find the discount or premium amount?
2. Calculate the current yield and expected capital gain yield?
3. If the discount rate is expected to raise up to 8%. What is the bond current
market price (VB)?
4. Bond prices and yields (S3.1) A 10-year German government bond (bund) has a face value of €100 and a coupon rate of 5%
paid annually. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond's PV?
Consider a bond paying a coupon rate of 10% per year semi-annually when the market interest rate is only 4% per half-year. The bond has three years until maturity. This initial payment is $1000. A: What is find the bond’s price today and 6 months time after the next coupon is paid? B: What is the total rate of return on the bond?
Chapter 3 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Bond prices and yields A 10-year bond is issued...Ch. 3 - Bond prices and yields The following statements...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year U.S. Treasury...
Ch. 3 - Bond returns If a bonds yield to maturity does not...Ch. 3 - Bond returns a. An 8%, five-year bond yields 6%....Ch. 3 - Prob. 10PSCh. 3 - Duration True or false? Explain. a....Ch. 3 - Duration Here are the prices of three bonds with...Ch. 3 - Duration Calculate the durations and volatilities...Ch. 3 - Prob. 14PSCh. 3 - Duration Find the spreadsheet for Table 3.4 in...Ch. 3 - Prob. 16PSCh. 3 - Spot interest rates and yields Which comes first...Ch. 3 - Prob. 18PSCh. 3 - Spot interest rates and yields Look again at Table...Ch. 3 - Prob. 20PSCh. 3 - Spot interest rates and yields Assume annual...Ch. 3 - Spot interest rates and yields A 6% six-year bond...Ch. 3 - Spot interest rates and yields Is the yield on...Ch. 3 - Prob. 24PSCh. 3 - Measuring term structure The following table shows...Ch. 3 - Term-structure theories The one-year spot interest...Ch. 3 - Term-structure theories Look again at the spot...Ch. 3 - Real interest rates The two-year interest rate is...Ch. 3 - Prob. 30PSCh. 3 - Bond ratings A bonds credit rating provides a...Ch. 3 - Prob. 32PSCh. 3 - Price and spot interest rates Find the arbitrage...Ch. 3 - Prob. 34PSCh. 3 - Prices and spot interest rates What spot interest...Ch. 3 - Prices and spot interest rates Look one more time...
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- Suppose that you have purchased a EUR bond issued by Deutsche Bank. At the time of the purchase, the price of the bond was EUR 98.5M. The bond matures in 3 years, pays a fixed 5% coupon bond, and has a face value of EUR 100M. That is the expected YTM in USD if the spot rate is USD 1/EUR, F1 is USD 1.12/EUR, F2 is USD 1.15/EUR, F3 is USD 1.18/EUR? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.arrow_forwardBond X is a premium bon making annual payments. The bond pays 8% coupon, has YTM of 6% and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6% coupon, has an YTM of 8% and also has 13 years to maturity. The nominal value of both bonds is £1,000. What are the prices of these bonds today? If interest rates remain unchanged, what do you expect the prices of these bonds to be in one year? In three years? In eight years? In twelve, thirteen years? What is going on here? Illustrate your answers by graphing bond prices versus time to maturity.arrow_forwardLet's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is Pn =-, where I is the annual net income the bond generates and r is the nominal market interest rate. a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)arrow_forward
- Use the following information to answer the questions. Bond A Bond B Face Value 1000 1000 Coupon rate 10% 8% Coupons paid out Semi-annually Quarterly Years to maturity 4 4 Bond price 800 ? Suppose bond A and B have the same YTM. What is the yield to maturity of bond A? What is the price of bond B? What is the current yield of bond B? What is the EAR (effective annual rate) of these two bonds?arrow_forwardA bond with a nominal of EUR 400 000 000 and a maturity of 2 years has acoupon of 4.24%. The price of the bond is 96.5%. What is the coupon expressedin money (euro) in the second year? Calculate the yield of the bond (or writedown the equation with all number filled in). Can you use this yield to calculatethe current value (PV) of the coupon in year 2? Explain your answer.do not solve in excel. solve using YTM and spot rates Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardConsider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.5%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timelinearrow_forward
- Suppose that a short-term government bond has a face value of $100. If the price of that bond is $95. What is the insterest rate of that bond? 5.3% 9.0% 10.0% 1.0%arrow_forward1.If you buy a 5-week T-bill with a face value of Tk.1,500 for $990, what is the bond equivalent yield, assuming it is not a leap year?arrow_forwardThe graph below is the yield chart of 5 year German Government Bond in Euros. As it is seen from the chart; 5 year German government bond was trading at yield of - 0.40% 1 month ago. The current yield to maturity is - 0.75%. If you purchase this bond now and hold it to maturity, would you make a profit or loss? How much profit or loss would you make in terms of annulized yield? Can you make profit if you trade with this bond during 1 month? Explain briefly.arrow_forward
- Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 27 years to maturity, and a coupon rate of 3.6 percent paid annually. If the yield to maturity is 3.2 percent, what is the current price of the bond in euros? Input area: Settlement date Maturity date Coupon rate Coupons per year Redemption value (% of par) Yield to maturity Par value 1/1/2020 1/1/2047 3.60% 1 100 3.20% € 1,000 to answer this question. Leave the "Basis" input blank in the function. You may enter a constant as a hard coded value.) Output area: Price (% of par) Pricearrow_forwardIf the real rate of interest is 2%, inflation is expected to be 3% during the coming year, and the default risk premium, illiquidity risk premium, and maturity risk premium for the Bonds-R-Us Corporation are all 1% each, what would be the yield (stated rate) on a Bonds-R-Us bond?arrow_forwardTreasury bond pays coupon 12% per year (semiannually). The maturity is 2 years, face value is 100. The yield maturity is 18%. Question 1. What is the price of bond?. what is the duration of bond? Question 2. What is convexity of bond? If interest rate rise by 0.5%, what will be the change of bond price?arrow_forward
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