All Related Questions of Coupon Bond

Q: For the firm in the previous problem, suppose the book value

For the firm in the previous problem, suppose the book value of the debt issue is $70 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to...

Q: Suppose you bought a 6 percent coupon bond one year ago for

Suppose you bought a 6 percent coupon bond one year ago for $1,040. The bond sells for $1,063 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past...

Q: You purchased a zero coupon bond one year ago for $109

You purchased a zero coupon bond one year ago for $109.83. The market interest rate is now 9 percent. If the bond had 25 years to maturity when you originally purchased it, what was your total return...

Q: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures in one year. The current market value of the firm’s assets is $26,300. The standard deviation of the r...

Q: You enter into a forward contract to buy a 10-year

You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000, and the 1-year and 11-year spot interest rates are 5 percent...

Q: Suppose the firm in the previous problem is considering two mutually exclusive

Suppose the firm in the previous problem is considering two mutually exclusive investments. Project A has an NPV of $1,200, and Project B has an NPV of $1,600. As a result of taking Project A, the sta...

Q: Frostbite Thermalwear has a zero coupon bond issue outstanding with a face

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $30,000 that matures in one year. The current market value of the firm’s assets is $36,400. The standard deviation o...

Q: Brozik Corp. has a zero coupon bond that matures in five

Brozik Corp. has a zero coupon bond that matures in five years with a face value of $60,000. The current value of the company’s assets is $57,000, and the standard deviation of its return on assets is...

Q: A company has a single zero coupon bond outstanding that matures in

A company has a single zero coupon bond outstanding that matures in 10 years with a face value of $15 million. The current value of the company’s assets is $13.4 million, and the standard deviation of...

Q: McLemore Industries has a zero coupon bond issue that matures in two

McLemore Industries has a zero coupon bond issue that matures in two years with a face value of $50,000. The current value of the company’s assets is $29,000, and the standard deviation of the return...

Q: You’ve just found a 10 percent coupon bond on the market that

You’ve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?

Q: Suppose your company needs to raise $45 million and you want

Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue a...

Q: Bond P is a premium bond with a 9 percent coupon.

Bond P is a premium bond with a 9 percent coupon. Bond D is a 5 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have 10 years to matu...

Q: The YTM on a bond is the interest rate you earn on

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period...

Q: What is the price of a 15-year, zero coupon

What is the price of a 15-year, zero coupon bond paying $1,000 at maturity if the YTM is: a. 5 percent? b. 10 percent? c. 15 percent?

Q: You buy a zero coupon bond at the beginning of the year

You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 7 percent, and 25 years to maturity. If you hold the bond for the entire year, how much in interest in...

Q: The Faulk Corp. has a 6 percent coupon bond outstanding.

The Faulk Corp. has a 6 percent coupon bond outstanding. The Gonas Company has a 14 percent bond outstanding. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 10 perce...

Q: All else being the same, which has more interest rate risk

All else being the same, which has more interest rate risk, a long term bond or a short-term bond? What about a low coupon bond compared to a high coupon bond? What about a long-term, high coupon bond...

Q: Last year Clark Company issued a 10-year, 12%

Last year Clark Company issued a 10-year, 12% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 4 years at a price of $1,060 and it sells for $1,100. a. What are...

Q: An 8% semiannual coupon bond matures in 5 years. The

An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.21%. What are the bond’s price and YTM?

Q: Robert Black and Carol Alvarez are vice presidents of Western Money Management

Robert Black and Carol Alvarez are vice presidents of Western Money Management and Co directors of the company’s pension fund management division. A major new client, the California League of Cities,...

Q: Assume the current Treasury yield curve shows that the spot rates for

Assume the current Treasury yield curve shows that the spot rates for 6 months, 1 year, and 1 1/2 years are 1%, 1.1%, and 1.3%, all quoted as semiannually compounded APRs. What is the price of a $1000...

Q: You have purchased a 10% coupon bond for $1040.

You have purchased a 10% coupon bond for $1040. What will happen to the bond’s price if market interest rates rise?

Q: For each of the following pairs of Treasury securities (each with

For each of the following pairs of Treasury securities (each with $1000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero coupon bond? b. A th...

Q: General Electric has just issued a callable (at par) ten

General Electric has just issued a callable (at par) ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It...

Q: Boeing Corporation has just issued a callable (at par) three

Boeing Corporation has just issued a callable (at par) three-year, 5% coupon bond with semiannual coupon payments. The bond can be called at par in two years or anytime thereafter on a coupon payment...

Q: Compute the price of a 3.8 percent coupon bond with

Compute the price of a 3.8 percent coupon bond with 15 years left to maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond?...

Q: Compute the price of a 5.6 percent coupon bond with

Compute the price of a 5.6 percent coupon bond with ten years left to maturity and a market interest rate of 7.0 percent. (Assume interest payments are semiannual.) Is this a discount or premium bo...

Q: Calculate the price of a 5.2 percent coupon bond with

Calculate the price of a 5.2 percent coupon bond with 18 years left to maturity and a market interest rate of 4.6 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond...

Q: Calculate the price of a 5.7 percent coupon bond with

Calculate the price of a 5.7 percent coupon bond with 22 years left to maturity and a market interest rate of 6.5 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond...

Q: A 5.65 percent coupon bond with 18 years left to

A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

Q: A 4.30 percent coupon bond with 14 years left to

A 4.30 percent coupon bond with 14 years left to maturity is offered for sale at $943.22. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

Q: A 6.75 percent coupon bond with 26 years left to

A 6.75 percent coupon bond with 26 years left to maturity can be called in six years. The call premium is one year of coupon payments. It is offered for sale at $1,135.25. What is the yield to call o...

Q: A 5.25 percent coupon bond with 14 years left to

A 5.25 percent coupon bond with 14 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,075.50. What is the yield to call...

Q: Describe the differences in interest payments and bond price between a 5

Describe the differences in interest payments and bond price between a 5 percent coupon bond and a zero coupon bond.

Q: Determine the interest payment for the following three bonds: 3 ½

Determine the interest payment for the following three bonds: 3 ½ percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in...

Q: Determine the interest payment for the following three bonds: 4 ½

Determine the interest payment for the following three bonds: 4 ½ percent coupon corporate bond (paid semiannually), 5.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15...

Q: A 6 percent corporate coupon bond is callable in five years for

A 6 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issue...

Q: A 5.5 percent corporate coupon bond is callable in ten

A 5.5 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer...

Q: Calculate the price of a zero coupon bond that matures in 20

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 3.8 percent.

Q: Calculate the price of a zero coupon bond that matures in 15

Calculate the price of a zero coupon bond that matures in 15 years if the market interest rate is 5.75 percent.

Q: A 5.75 percent coupon bond with ten years left to

A 5.75 percent coupon bond with ten years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What is the chan...

Q: A 6.5 percent coupon bond with 14 years left to

A 6.5 percent coupon bond with 14 years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.8 percent. What is the change...

Q: A 6.25 percent coupon bond with 22 years left to

A 6.25 percent coupon bond with 22 years left to maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. If this occurs, w...

Q: A 7.5 percent coupon bond with 13 years left to

A 7.5 percent coupon bond with 13 years left to maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. If this occurs, w...

Q: Using the information in Table 7.1, suppose you buy

Using the information in Table 7.1, suppose you buy a 3-year par coupon bond and hold it for 2 years, after which time you sell it. Assume that interest rates are certain not to change and that you re...

Q: Using the information in Table 7.1, a.

Using the information in Table 7.1, a. Compute the implied forward rate from time 1 to time 3. b. Compute the implied forward price of a par 2-year coupon bond that will be issued at time 1.

Q: Suppose you observe the following par coupon bond yields: 0.

Suppose you observe the following par coupon bond yields: 0.03000 (1-year), 0.03491 (2-year), 0.03974 (3-year), 0.04629 (4-year), 0.05174 (5-year). For each maturity year compute the zero-coupon bond...

Q: Using the information in the previous problem, find the price of

Using the information in the previous problem, find the price of a 5-year coupon bond that has a par payment of $1,000.00 and annual coupon payments of $60.00.

Q: Consider the bonds in Example 7.8. What hedge ratio

Consider the bonds in Example 7.8. What hedge ratio would have exactly hedged the portfolio if interest rates had decreased by 25 basis points? Increased by 25 basis points? Repeat assuming a 50-basis...

Q: Suppose the interest rate is 10 percent. What is the value

Suppose the interest rate is 10 percent. What is the value of a coupon bond that pays $80 per year for each of the next five years and then makes a principal repayment of $1000 in the sixth year? Repe...

Q: You are a personal financial planner working with a married couple in

You are a personal financial planner working with a married couple in their early 40s who have decided to invest $100,000 in corporate bonds. You have found two bonds that you think will interest your...

Q: The following table shows the prices of a sample of U.

The following table shows the prices of a sample of U.S. Treasury strips in February 2012. Each strip makes a single payment of $1,000 at maturity. a. Calculate the annually compounded, spot interest...

Q: Company A has issued a single zero-coupon bond maturing in

Company A has issued a single zero-coupon bond maturing in 10 years. Company B has issued a coupon bond maturing in 10 years. Explain why it is more complicated to value B’s debt than A’s.

Q: Suppose that a company simultaneously issues a zero-coupon bond and

Suppose that a company simultaneously issues a zero-coupon bond and a coupon bond with identical maturities. Both are callable at any time at their face values. Other things equal, which is likely to...

Q: A 10-year, 12% semiannual coupon bond with a

A 10-year, 12% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.) a. What is...

Q: Sam Strother and Shawna Tibbs are vice presidents of Mutual of

Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and co_directors of the company’s pension fund management division. An important new client, the North-Western...

Q: Suppose your company needs to raise $30 million and you want

Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue a...

Q: Bond P is a premium bond with a 12 percent coupon.

Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 9 percent, and have five years to m...

Q: Is the yield to maturity on a bond the same thing as

Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the require...

Q: Calculate the duration of a $1,000, 6%

Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.

Q: Consider the bond in the previous question. Calculate the expected price

Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the duration approximation. Calculate the actual price change using discounted cas...

Q: A 10-year, 7% coupon bond with a face

A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10.

Q: You have paid $980.30 for an 8% coupon

You have paid $980.30 for an 8% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 9% rate of return on this investmen...

Q: Consider a coupon bond that has a $1,000 par

Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and has eight years to maturity. What is the bond’s yield to maturity?

Q: Write down the formula that is used to calculate the yield to

Write down the formula that is used to calculate the yield to maturity on a 20-year 10% coupon bond with $1,000 face value that sells for $2,000.

Q: Consider the decision to purchase either a five-year corporate bond

Consider the decision to purchase either a five-year corporate bond or a five-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 1...

Q: What are the holding period and the annualized compounded returns if you

What are the holding period and the annualized compounded returns if you buy a zero coupon bond for $519 and it is redeemed after five years for $1,000? Compare the answer to the answer for Problem 5....

Q: Fiona Corcoran is responsible for meeting distributions for EEM Health and Life

Fiona Corcoran is responsible for meeting distributions for EEM Health and Life Insurance Company. An actuary, Robert Bjornsund, has forecasted that a specific policy will require $210,000 after ten y...

Q: What is the price of the following zero coupon bonds if interest

What is the price of the following zero coupon bonds if interest rates are (a) 4 percent, (b) 7 percent, and (c) 10 percent? • Bond A: zero coupon; maturity 5 years • Bond B: zero coupon; maturity 1...

Q: (This problem illustrates “riding the yield curve,” which is

(This problem illustrates “riding the yield curve,” which is covered in the appendix to this chapter.) The U.S. Treasury issues a ten-year, zero coupon bond. a) Wha...

Q: A $1,000 zero coupon bond sells for $519

A $1,000 zero coupon bond sells for $519 and matures after five years. What is the current yield and the yield to maturity?

Q: What is the price of the following split coupon bond if comparable

What is the price of the following split coupon bond if comparable yields are 12 percent? If comparable yields decline to 10 percent, what is the appreciation in the price of the bond?

Q: Consider a call option with an exercise rate of x on an

Consider a call option with an exercise rate of x on an interest rate, which we shall denote as simply L. The underlying rate is an M-day rate and pays off based on 360 days in a year. Now consider a...

Q: Suppose you are asked to assist in the design of an equity

Suppose you are asked to assist in the design of an equity-linked security. The instrument is a five-year zero coupon bond with a guaranteed return of 1 percent, compounded annually. At the end of fiv...

Q: A company has assets with a market value of $100.

A company has assets with a market value of $100. It has one outstanding bond issue, a zero coupon bond maturing in two years with a face value of $75. The risk-free rate is 5 percent. The volatility...

Q: French energy giant GDF Suez recently issued a zero coupon bond.

French energy giant GDF Suez recently issued a zero coupon bond. This bond issuance garnered attention because it was the first time in 14 years that a zero coupon bond had been issued in euros. The z...

Q: You are a personal financial planner working with a married couple in

You are a personal financial planner working with a married couple in their early 40s who have decided to invest $100,000 in corporate bonds. You have found two bonds that you think will interest your...

Q: A 10-year 8% coupon bond currently sells for $

A 10-year 8% coupon bond currently sells for $90. A 10-year 4% coupon bond currently sells for $80. What is the 10-year zero rate? (Hint: Consider taking a long position in two of the 4% coupon bonds...

Q: You find a zero coupon bond with a par value of $

You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.9 percent, what is the dollar price of the bond? Assume semiannual compound...

Q: You purchased a zero coupon bond one year ago for $160

You purchased a zero coupon bond one year ago for $160.53. The market interest rate is now 7.5 percent. If the bond had 25 years to maturity when you originally purchased it, what was your total retur...

Q: You buy a zero coupon bond at the beginning of the year

You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 6.3 percent, and 25 years to maturity. If you hold the bond for the entire year, how much in interest...

Q: For the firm in the previous problem, suppose the book value

For the firm in the previous problem, suppose the book value of the debt issue is $35 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to...

Q: All else being the same, which has more interest rate risk

All else being the same, which has more interest rate risk, a long-term bond or a short-term bond? What about a low coupon bond compared to a high coupon bond? What about a long-term, high coupon bond...

Q: The Faulk Corp. has a 6 percent coupon bond outstanding.

The Faulk Corp. has a 6 percent coupon bond outstanding. The Gonas Company has a 14 percent bond outstanding. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 10 perce...

Q: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $20,000 face value that matures in one year. The current market value of the firm’s assets is $21,700. The standard deviation of the r...

Q: Frostbite Thermalwear has a zero coupon bond issue outstanding with a face

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $25,000 that matures in one year. The current market value of the firm’s assets is $27,200. The standard deviation o...

Q: A company has a single zero coupon bond outstanding that matures in

A company has a single zero coupon bond outstanding that matures in 10 years with a face value of $10 million. The current value of the company’s assets is $9.05 million, and the standard deviation of...

Q: : You’ve just found a 10 percent coupon bond on the market

You’ve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?

Q: Suppose your company needs to raise $50 million and you want

Suppose your company needs to raise $50 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue a...

Q: McLemore Industries has a zero coupon bond issue that matures in two

McLemore Industries has a zero coupon bond issue that matures in two years with a face value of $75,000. The current value of the company’s assets is $46,000, and the standard deviation of the return...

Q: Brozik Corp. has a zero coupon bond that matures in five

Brozik Corp. has a zero coupon bond that matures in five years with a face value of $40,000. The current value of the company’s assets is $38,000, and the standard deviation of its return on assets is...

Q: What is the price of a 15-year, zero coupon

What is the price of a 15-year, zero coupon bond paying $1,000 at maturity, assuming semiannual compounding, if the YTM is: a. 6 percent? b. 8 percent? c. 10 percent?

Q: You enter into a forward contract to buy a 10-year

You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000, and the 1-year and 11-year spot interest rates are 5 percent...

Q: After Dan’s EFN analysis for East Coast Yachts (see the Mini

After Dan’s EFN analysis for East Coast Yachts (see the Mini Case in Chapter 3), Larissa has decided to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $50 mil...

Q: A zero coupon bond with a 6 percent YTM has 20 years

A zero coupon bond with a 6 percent YTM has 20 years to maturity. Two years later, the price of the bond remains the same. What’s going on here?

Q: Suppose you buy a 6 percent coupon bond today for $1

Suppose you buy a 6 percent coupon bond today for $1,080. The bond has 10 years to maturity. What rate of return do you expect to earn on your investment? Two years from now, the YTM on your bond has...

Q: Is the yield to maturity (YTM) on a bond the

Is the yield to maturity (YTM) on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose that today a 10 percent coupon bond sells at par. Two years from now,...

Q: For the bond referred to in Problem 14, what would be

For the bond referred to in Problem 14, what would be the realized yield if it were held to maturity? Data from Problem 14: A zero coupon bond with a 6 percent YTM has 20 years to maturity. Two year...

Q: You’ve just found a 10 percent coupon bond on the market that

You’ve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?

Q: What is the Macaulay duration of a 7 percent coupon bond with

What is the Macaulay duration of a 7 percent coupon bond with five years to maturity and a current price of $1,025.30? What is the modified duration?

Q: In Problem 23, suppose the yield on the bond suddenly increases

In Problem 23, suppose the yield on the bond suddenly increases by 2 percent. Use duration to estimate the new price of the bond. Compare your answer to the new bond price calculated from the usual bo...

Q: What is the dollar value of an 01 for the bond in

What is the dollar value of an 01 for the bond in Problem 23? Data from Problem 23: What is the Macaulay duration of a 7 percent coupon bond with five years to maturity and a current price of $1,025...

Q: One method used to obtain an estimate of the term structure of

One method used to obtain an estimate of the term structure of interest rates is called bootstrapping. Suppose you have a one-year zero coupon bond with a rate of r1 and a two-year bond with an annual...

Q: Show that under Merton’s model in Section 24.6 the credit

Show that under Merton’s model in Section 24.6 the credit spread on a T-year zero coupon bond is
, where
.

Q: Which has the longest duration: a 30-year, 8

Which has the longest duration: a 30-year, 8 percent yield to maturity, 5 percent coupon bond or a 30-year, 10 percent yield to maturity, 5 percent coupon bond?

Q: Two bonds are available for purchase in the financial markets. The

Two bonds are available for purchase in the financial markets. The first bond is a two-year, $1,000 bond that pays an annual coupon of 10 percent. The second bond is a two year, $1,000, zero-coupon bo...

Q: Consider a 12-year, 12 percent annual coupon bond with

Consider a 12-year, 12 percent annual coupon bond with a required rate of return of 10 percent. The bond has a face value of $1,000. a. What is the fair present value of the bond? b. If the required r...

Q: Consider a five-year, 15 percent annual coupon bond with

Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 12 percent. a. What is the price of the bond? b. If the rate of interest increases 1 p...

Q: Three years ago you purchased a 10% coupon bond that pays

Three years ago you purchased a 10% coupon bond that pays semiannual coupon payments for $975. What would be your bond equivalent yield if you sold the bond for current market price of $1,050?

Q: Consider two bonds, a 10-year premium bond with a

Consider two bonds, a 10-year premium bond with a coupon rate higher than its required rate of return and a zero coupon bond that pays only a lump sum payment after 10 years with no interest over its...

Q: Consider again the two bonds in Question 13. If the investment

Consider again the two bonds in Question 13. If the investment goal is to leave the assets untouched until maturity, such as for a child’s education or for one’s retirement, which of the two bonds has...

Q: Tree Row Bank has assets of $150 million, liabilities of

Tree Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The asset duration is six years and the duration of the liabilities is four years. Market interest rat...

Q: Suppose you bought a 7 percent coupon bond one year

Suppose you bought a 7 percent coupon bond one year ago for $1,040. The bond sells for $1,070 today.a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past...

Q: For the firm in Problem 7, suppose the book value

For the firm in Problem 7, suppose the book value of the debt issue is $80 million. In addition, the company has a second debt issue on the market, a zero coupon bond with seven years left to maturity...

Q: Lopez Information Systems management is planning to issue 10-year bonds

Lopez Information Systems management is planning to issue 10-year bonds. The going market yield for such bonds is 8.125 percent. Assume that coupon payments will be made semiannually. Management is tr...

Q: Diane Carter is interested in buying a five-year zero coupon

Diane Carter is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 9 percent. Assume annual coupon...

Q: You are considering investing in a 10-year zero coupon bond

You are considering investing in a 10-year zero coupon bond that compounds interest semiannually. If the current market rate is 5.65 percent, what is the maximum price you should have pay for this bon...

Q: A 25-year, zero coupon bond was recently quoted at

A 25-year, zero coupon bond was recently quoted at 6.500. Find the current yield and yield to maturity of this issue, given the bond has a par value of $1,000. (Assume annual compounding for the yield...

Q: You have decided to sell a 5 percent semiannual coupon bond two

You have decided to sell a 5 percent semiannual coupon bond two months after the last coupon payment. The bond is currently selling for $951.25. Answer the following questions about the bond: a. What...

Q: Sunburn Sunscreen has a zero coupon bond issue outstanding with

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $15,000 face value that matures in one year. The current market value of the firm’s assets is $16,200. The standard deviation of the r...

Q: For the firm in Problem 7, suppose the book value

For the firm in Problem 7, suppose the book value of the debt issue is $95 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity...

Q: Frostbite Thermal wear has a zero coupon bond issue outstanding

Frostbite Thermal wear has a zero coupon bond issue outstanding with a face value of $23,000 that matures in one year. The current market value of the firm’s assets is $26,200. The standard deviation...

Q: A company has a single zero coupon bond outstanding that

A company has a single zero coupon bond outstanding that matures in five years with a face value of $17.5 million. The current value of the company’s assets is $15.9 million, and the standard deviatio...

Q: Suppose your company needs to raise $53 million and you

Suppose your company needs to raise $53 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.3 percent, and you’re evaluating two issue...

Q: Zevon Industries has a zero coupon bond issue that matures

Zevon Industries has a zero coupon bond issue that matures in two years with a face value of $40,000. The current value of the company’s assets is $26,700, and the standard deviation of the return on...

Q: You find a zero coupon bond with a par value

You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the price of the bond? Assume semiannual compounding per...

Q: Colosseum Corp. has a zero coupon bond that matures in

Colosseum Corp. has a zero coupon bond that matures in five years with a face value of $65,000. The current value of the company’s assets is $62,000, and the standard deviation of its return on assets...

Q: Frostbite Thermal wear has a zero coupon bond issue outstanding

Frostbite Thermal wear has a zero coupon bond issue outstanding with a face value of $23,000 that matures in one year. The current market value of the firm’s assets is $26,200. The standard deviation...

Q: A company has a single zero coupon bond outstanding that

A company has a single zero coupon bond outstanding that matures in five years with a face value of $17.5 million. The current value of the company’s assets is $15.9 million, and the standard deviatio...

Q: Suppose your company needs to raise $53 million and you

Suppose your company needs to raise $53 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.3 percent, and you’re evaluating two issue...

Q: Zevon Industries has a zero coupon bond issue that matures

Zevon Industries has a zero coupon bond issue that matures in two years with a face value of $40,000. The current value of the company’s assets is $26,700, and the standard deviation of the return on...

Q: You find a zero coupon bond with a par value

You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the price of the bond? Assume semiannual compounding per...

Q: Colosseum Corp. has a zero coupon bond that matures in

Colosseum Corp. has a zero coupon bond that matures in five years with a face value of $65,000. The current value of the company’s assets is $62,000, and the standard deviation of its return on assets...

Q: For the firm in Problem 7, suppose the book value

For the firm in Problem 7, suppose the book value of the debt issue is $95 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity...

Q: If you purchase a zero coupon bond today for $225 and

If you purchase a zero coupon bond today for $225 and it matures at $1,000 in 11 years, what rate of return will you earn on that bond (to the nearest 1/ 10 = of 1 percent)?

Q: 1. Which of the following statements concerning bonds is incorrect?

1. Which of the following statements concerning bonds is incorrect? a. They involve blended payments of principal and interest. b. They have a fixed maturity date, at which time the issuer repays the...

Q: An 8 percent annual coupon bond with 12 years left to maturity

An 8 percent annual coupon bond with 12 years left to maturity is selling for $928. What is the YTM of the bond?

Q: A nine‐year, 6.5‐percent coupon bond

A nine‐year, 6.5‐percent coupon bond is selling for 106.2 percent of par. What is the bond ’ s market yield if it makes semi‐annual coupon payments?

Q: a . What is the value of a 10‐year,

a . What is the value of a 10‐year, zero coupon bond with a face value of $1,000 when the market rate is 8 percent? b . Calculate the YTM of the above zero coupon bond if the current price is $760.

Q: A zero coupon bond has a par value of $1,

A zero coupon bond has a par value of $1,000 and will mature in eight years. a . Calculate the current price of this bond if the market yield is: i) 7.75 percent; ii) 5.25 percent. b . In each case, c...

Q: The Slice & Dice Investment Co. needs some help understanding the

The Slice & Dice Investment Co. needs some help understanding the intricacies of bond pricing. It has observed the following prices for zero coupon bonds that have no risk of default: a . How much...

Q: A 10-year, 12% semiannual coupon bond with a

A 10-year, 12% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.) a. What is...

Q: Suppose the current yield on a one-year, zero coupon

Suppose the current yield on a one-year, zero coupon bond is 3%, while the yield on a five-year, zero coupon bond is 5%. Neither bond has any risk of default. Suppose you plan to invest for one year....

Q: General Electric has just issued a callable 10-year, 6

General Electric has just issued a callable 10-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It has a pric...

Q: Suppose your company needs to raise $65 million and you want

Suppose your company needs to raise $65 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 4.9 percent, and you’re evaluating two issue...

Q: You’ve just found a 10 percent coupon bond on the market that

You’ve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?

Q: You find a zero coupon bond with a par value of $

You find a zero coupon bond with a par value of $10,000 and 24 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the dollar price of the bond? Assume semiannual compound...

Q: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year. The current market value of the firm’s assets is $10,900. The standard deviation of the r...

Q: Frostbite Thermalwear has a zero coupon bond issue outstanding with a face

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the firm’s assets is $23,100. The standard deviation o...

Q: A company has a single zero coupon bond outstanding that matures in

A company has a single zero coupon bond outstanding that matures in five years with a face value of $16.5 million. The current value of the company’s assets is $15.1 million, and the standard deviatio...

Q: Zoso Industries has a zero coupon bond issue that matures in two

Zoso Industries has a zero coupon bond issue that matures in two years with a face value of $50,000. The current value of the company’s assets is $34,600, and the standard deviation of the return on a...

Q: Marshall Corp. has a zero coupon bond that matures in five

Marshall Corp. has a zero coupon bond that matures in five years with a face value of $75,000. The current value of the company’s assets is $71,000, and the standard deviation of its return on assets...

Q: For the firm in Problem 7, suppose the book value of

For the firm in Problem 7, suppose the book value of the debt issue is $75 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity...

Q: A newly issued 10-year maturity, 4% coupon bond

A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is sold to the public at a price of $800. What will be an investor’s taxable income from the bond over the coming year? Th...

Q: A 30-year maturity, 7% coupon bond paying coupons

A 30-year maturity, 7% coupon bond paying coupons semiannually is callable in five years at a call price of $1,100. The bond currently sells at a yield to maturity of 6% (3% per half-year). a. What is...

Q: These two bonds were issued five years ago, with terms given

These two bonds were issued five years ago, with terms given in the following table: a. Why is the price range greater for the 6% coupon bond than the floating-rate bond? b. What factors could explain...

Q: Consider an 8% coupon bond selling for $953.10

Consider an 8% coupon bond selling for $953.10 with three years until maturity making annual coupon payments. The interest rates in the next three years will be, with certainty, r1 = 8%, r2 = 10%, and...

Q: Prices of zero-coupon bonds reveal the following pattern of forward

Prices of zero-coupon bonds reveal the following pattern of forward rates: Year Forward Rate 1……………………..5% 2……………………..7 3……………………..8 In addition to the zero-coupon bond, investors also m...

Q: Suppose that a 1-year zero-coupon bond with face

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $94.34, while a 2-year zero sells at $84.99. You are considering the purchase of a 2-year-maturity bond making annual cou...

Q: The current yield curve for default-free zero-coupon bonds

The current yield curve for default-free zero-coupon bonds is as follows: Maturity (years) YTM (%) 1…………………..10% 2…………………..11 3…………………..12 a. What are the implied 1-year forward rates? b. Assume that...

Q: a. An investment in a coupon bond will provide the investor

a. An investment in a coupon bond will provide the investor with a return equal to the bond’s yield to maturity at the time of purchase if: i. The bond is not called for redemption at a price that ex...

Q: Which security has a higher effective annual interest rate? a

Which security has a higher effective annual interest rate? a. A 3-month T-bill selling at $97,645 with par value $100,000. b. A coupon bond selling at par and paying a 10% coupon semiannually.

Q: a. Find the duration of a 6% coupon bond making

a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 6%. b. What is the duration if the yield to maturity is 10%?...

Q: a. A 6% coupon bond paying interest annually has a

a. A 6% coupon bond paying interest annually has a modified duration of 10 years, sells for $800, and is priced at a yield to maturity of 8%. If the YTM increases to 9%, what is the predicted change i...

Q: a. Footnote 7 presents the formula for the convexity of a

a. Footnote 7 presents the formula for the convexity of a bond. Build a spreadsheet to calculate the convexity of a 5-year, 8% coupon bond making annual payments at the initial yield to maturity of 10...

Q: Repeat Problem 4, but now assume the coupons are paid semiannually

Repeat Problem 4, but now assume the coupons are paid semiannually. Problem 4: a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a y...

Q: Rank the durations or effective durations of the following pairs of bonds

Rank the durations or effective durations of the following pairs of bonds: a. Bond A is a 6% coupon bond, with a 20-year time to maturity selling at par value. Bond B is a 6% coupon bond, with a 20-ye...

Q: a.Use a spreadsheet to calculate the durations of the two

a.Use a spreadsheet to calculate the durations of the two bonds in Spreadsheet 16.1 if the market interest rate increases to 12%. Why does the duration of the coupon bond fall while that of the zero r...

Q: A 12.75-year-maturity zero-coupon bond

A 12.75-year-maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 150.3 and modified duration of 11.81 years. A 30-year-maturity 6% coupon bond maki...

Q: The following table shows the prices of a sample of Narnian Treasury

The following table shows the prices of a sample of Narnian Treasury strips in December 2018. Each strip makes a single payment of $1,000 at maturity. a. Calculate the annually compounded, spot intere...

Q: Which security has a higher effective annual interest rate? a

Which security has a higher effective annual interest rate? a. A three-month T-bill with face value of $100,000 currently selling at $97,645. b. A coupon bond selling at par and paying a 10% coupon...

Q: A coupon bond paying semiannual interest is reported as having an ask

A coupon bond paying semiannual interest is reported as having an ask price of 117% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 6%, what is the...

Q: Two bonds were issued five years ago, with terms given in

Two bonds were issued five years ago, with terms given in the following table: a. Why is the price range greater for the 9% coupon bond than the floating-rate bond? b. What factors could explain why...

Q: A newly issued 10-year maturity, 4% coupon bond

A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is sold to the public at a price of $800. What will be an investor’s taxable income from the bond over the coming year? Th...

Q: A 30-year maturity, 6% coupon bond paying coupons

A 30-year maturity, 6% coupon bond paying coupons semiannually is callable in five years at a call price of $1,100. The bond currently sells at a yield to maturity of 5% (2.5% per half-year). a. What...

Q: a. Find the duration of a 6% coupon bond making

a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 6%. b. What is the duration if the yield to maturity is 10%?

Q: Rank the interest rate sensitivity of the following pairs of bonds.

Rank the interest rate sensitivity of the following pairs of bonds. a. Bond A is a 6% coupon, 20-year-maturity bond selling at par value. Bond B is a 6% coupon, 20-year-maturity bond selling below pa...

Q: Find the convexity of a seven-year maturity, 6%

Find the convexity of a seven-year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annually. (Hint: You can use the spreadsheet from this chapter’s Excel Appli...

Q: a. Use a spreadsheet to calculate the durations of the two

a. Use a spreadsheet to calculate the durations of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%. Why does the duration of the coupon bond fall while that of the zero...

Q: a. Footnote 2 in the chapter presents the formula for the

a. Footnote 2 in the chapter presents the formula for the convexity of a bond. Build a spreadsheet to calculate the convexity of the 8% coupon bond in Spreadsheet 11.1 at the initial yield to maturity...

Q: A 12.75-year-maturity zero-coupon bond

A 12.75-year-maturity zero-coupon bond selling at a yield to maturity of 8% has convexity of 150.3 and modified duration of 11.81 years. A 30-year-maturity 6% coupon bond making annual coupon payments...

Q: Refer to zero coupon bonds. A zero-coupon bond is

Refer to zero coupon bonds. A zero-coupon bond is a bond that is sold now at a discount and will pay its face value at some time in the future when it matures—no interest payments are made. If you pa...

Q: Three years ago you purchased a 10% coupon bond that pays

Three years ago you purchased a 10% coupon bond that pays semiannual coupon payments for $975. What would be your bond equivalent yield if you sold the bond for its current market price of $1,050?

Q: Danigal purchased a $150,000, 6% coupon bond

Danigal purchased a $150,000, 6% coupon bond from Intregal Corp. on 1 January 20X2. Interest is paid semi-annually on 30 June and 31 December. The market interest rate was 4.5% at the time of purchase...

Q: A $1000, 6.5% coupon bond has 13

A $1000, 6.5% coupon bond has 13 1 2 years remaining until maturity. Calculate the bond premium if the required return in the bond market is 5.5% compounded semiannually.

Q: A $1000, 5.5% coupon bond has 8

A $1000, 5.5% coupon bond has 8 1 2 years remaining until maturity. Calculate the bond discount if the required return in the bond market is 6.3% compounded semiannually.

Q: A $5000, 5.75% coupon bond has 16

A $5000, 5.75% coupon bond has 16 years remaining until maturity. Calculate the bond discount if the required return in the bond market is 6.5% compounded semiannually.

Q: A $25,000, 6.25% coupon bond

A $25,000, 6.25% coupon bond has 21 1 2 years remaining until maturity. Calculate the bond premium if the required return in the bond market is 5.2% compounded semiannually.

Q: Eight years ago, Yan purchased a $20,000 face

Eight years ago, Yan purchased a $20,000 face value, 6% coupon bond with 15 years remaining to maturity. The prevailing market rate of return at the time was 7.2% compounded semiannually; now it is 4....

Q: A $1000, 7% coupon bond has 15 years remaining

A $1000, 7% coupon bond has 15 years remaining until maturity. The rate of return required by the market on these bonds has recently been 7% (compounded semiannually). Calculate the price change if th...

Q: A $1000, 10% coupon bond issued by Ontario Hydro

A $1000, 10% coupon bond issued by Ontario Hydro on July 15, 2011 matures on July 15, 2036. What was its flat price on June 1, 2020 when the required yield to maturity was 5.5% compounded semiannually...

Q: A $1000 face value, 7.6% coupon bond

A $1000 face value, 7.6% coupon bond pays interest on May 15 and November 15. If its flat price on August 1 was $1065.50, at what price (expressed as a percentage of face value) would the issue have b...

Q: Page 592 Using the bond yield given in the final column of

Page 592 Using the bond yield given in the final column of Table, verify the April 15, 2019, quoted price for the Province of New Brunswick 2.85% coupon bond maturing June 2, 2023.

Q: Using the bond yield given in the final column of Table,

Using the bond yield given in the final column of Table, verify the April 15, 2019, quoted price for the Province of Ontario 1.35% coupon bond maturing March 8, 2022.

Q: Using the bond yield given in the final column of Table,

Using the bond yield given in the final column of Table, verify the April 15, 2019, quoted price for the Province of British Columbia 3.70% coupon bond maturing December 18, 2020.

Q: Using the bond price given in the second-to-last

Using the bond price given in the second-to-last column of Table, verify the April 15, 2019, yield (to maturity) for the Ontario Hydro 8.90% coupon bond maturing August 18, 2020.

Q: A $1000, 6.5% coupon bond issued by

A $1000, 6.5% coupon bond issued by Bell Canada matures on October 15, 2039. What was its flat price on June 11, 2020 if its yield to maturity was 4.75% compounded semiannually?

Q: A $1000, 7.5% coupon bond has 19

A $1000, 7.5% coupon bond has 19 1 2 years remaining until maturity. Calculate the bond discount if the required return in the bond market is 8.6% compounded semiannually.

Q: Consider a 6 percent coupon bond with a $1,000

Consider a 6 percent coupon bond with a $1,000 face value maturing tomorrow. a. What would be the price at which the bond is quoted? b. According to bond conventions, what is the bond’s flat price? c....

Q: Thalin Inc. has decided to extend its current product line.

Thalin Inc. has decided to extend its current product line. To finance the project, the firm is considering issuing a ten-year, 10 percent coupon bond. The firm has made public that its target debt-to...

Q: Consider a two-year, 5 percent coupon bond selling at

Consider a two-year, 5 percent coupon bond selling at par. Answer the following questions. a. What is the bond’s yield to maturity? What assumption does the yield make regarding the first coupon payme...