Exam 7: Valuing Bonds

Bond Prices and Interest Rate Changes A 6 percent coupon bond with 12 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 6.25 percent.What is the change in price the bond will experience in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 102:30,and a corporate bond quoted at 99.45,and a municipal bond quoted at 102.45.If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000,what is the price of these three bonds in dollars?

A corporate bond with an 8.5 percent coupon has 10 years left to maturity.It has had a credit rating of A and a yield to maturity of 10 percent.The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BBB.The new appropriate discount rate will be 11.5 percent.What will be the change in the bond's price in dollars? Assume interest payments are paid semi-annually and par value is $1,000.

All else equal,which bond's price is more affected by a change in interest rates,a bond with a large coupon or a small coupon? Why?

Yield to Maturity A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent.If this bond pays its coupon payments semi-annually and par value is $1,000,what is the bond's annual coupon rate?

A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of 92.55.The bond can be called in nine years.The call premium is one year of coupon payments.Compute the bond's yield to maturity and yield to call.Assume interest payments are paid semi-annually and a par value of $5,000.

A 3.75 percent TIPS has an original reference CPI of 183.9.If the current CPI is 214.7,what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Comparing Bond Yields A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 percent yield.Which bond will give the client more profit after taxes?

Describe the difference between a bond issued as a high-yield bond and one that has become a "fallen angel."

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Bond Prices and Interest Rate Changes A 7.25 percent coupon bond with 25 years left to maturity is priced to offer a 7 percent yield to maturity.You believe that in one year,the yield to maturity will be 7.15 percent.If this occurs,what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)

TIPS Interest and Par Value A 2.5 percent TIPS has an original reference CPI of 170.4.If the current CPI is 205.7,what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

A bond with 23 years to maturity is selling for $991 and has a yield to maturity of 8.12 percent.If this bond pays its coupon payments semi-annually and par value is $1,000,what is the bond's annual coupon rate?

A 5 percent coupon bond has 10 years to maturity and could be called in two years.If the bond is called,investors will earn 6.2 percent.The call premium is one year of coupon payments.If coupon payments are made semi-annually and par value is $1,000,what is the bond's yield to maturity?

A 30-year bond with an 8 percent coupon has a yield to maturity of 6 percent.The bond could be called in seven years and if called would generate a yield to call of 5.75 percent.What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

Which of the following statements is true?

Rank from lowest credit risk to highest credit risk the following bonds,with the same time to maturity,by their yield to maturity: Treasury bond with yield of 5.55 percent,IBM bond with yield of 7.95 percent,Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a yield of 6.12 percent.

Bond Prices and Interest Rate Changes A 6.75 percent coupon bond with 10 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 6.65 percent.If this occurs,what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)