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Question on valuing bonds

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Reference no: EM132443088

Valuing Bonds

Question 1: Interest Payments Determine the interest payment for the following three bonds: 31⁄2 percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in ten years. (Assume a $1,000 par value.) (LG7-1)

Question 2: Interest Payments Determine the interest payment for the following three bonds: 41⁄2 percent coupon corporate bond (paid semiannually), 5.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15 years. (Assume a $1,000 par value.) (LG7-1)

Question 3: Time to Maturity A bond issued by Ford on May 15, 1997 is scheduled to mature on May 15, 2097. If today is November 16, 2014, what is this bond's time to maturity? (LG7-1)

Question 4: Time to Maturity A bond issued by IBM on December 1, 1996, is scheduled to mature on December 1, 2096. If today is December 2, 2015, what is this bond's time to maturity? (LG7-1)

Question 5: Call Premium 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 issuer calls the bond? (LG7-1)

Question 7: Call Premium 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 calls the bond? (LG7-1)

Question 8: Bond Quotes Consider the following three bond quotes: a Treasury note quoted at 97:27, a corporate bond quoted at 103.25, and a municipal bond quoted at 101.90. 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? (LG7-3)

Question 9: Bond Quotes Consider the following three bond quotes: a Treasury bond quoted at 106:14, a corporate bond quoted at 96.55, and a municipal bond quoted at 100.95. 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? (LG7-3)

Question 10: Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 3.8 percent. (LG7-4)

Question 11: Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 15 years if the market interest rate is 5.75 percent. (LG7-4)

Question 12: Current Yield What's the current yield of a 3.8 percent coupon corporate bond quoted at a price of 102.08? (LG7-6)

Question 13: Current Yield What's the current yield of a 5.2 percent coupon corporate bond quoted at a price of 96.78? (LG7-6)

Question 14: Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.5 percent for an investor in the 33 percent marginal tax bracket? (LG7-6)

Question 15: Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 2.9 percent for an investor in the 28 percent marginal tax bracket? (LG7-6)

Question 16: Compute Bond Price 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? (LG7-4)

Question 17: Compute Bond Price 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? (LG7-4)

Question 18: Bond Prices and Interest Rate Changes 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 5.8 percent. What is the change in price the bond will experience in dollars? (LG7-5)

Question 19: Bond Prices and Interest Rate Changes 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 in price the bond will experience in dollars? (LG7-5)

Question 20: Yield to Maturity 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.) (LG7-6)

Question 21: Yield to Maturity 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.) (LG7-6)

Question 22: Yield to Call 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 of the bond? (Assume interest payments are semiannual.) (LG7-6)

Question 23: Yield to Call 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 of the bond? (Assume interest payments are semiannual.) (LG7-6)

Question 24: Bond Prices and Interest Rate Changes 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, what would be the total return of the bond in dollars and percentage terms? (LG7-5)

Question 25: Yields of a Bond A 2.50 percent coupon municipal bond has 12 years left to maturity and has a price quote of 98.45. The bond can be called in four years. The call premium is one year of coupon payments. Compute and discuss the bond's current yield, yield to maturity, taxable equivalent yield (for an investor in the 35 percent marginal tax bracket), and yield to call. (Assume interest payments are semiannual and a par value of $5,000.) (LG7-6)

Question 26: Yields of a Bond A 3.85 percent coupon municipal bond has 18 years left to maturity and has a price quote of 103.20. The bond can be called in eight years. The call premium is one year of coupon payments. Compute and discuss the bond's current yield, yield to maturity, taxable equivalent yield (for an investor in the 35 percent marginal tax bracket), and yield to call. (Assume interest payments are semiannual and a par value of $5,000.) (LG7-6)

Question 28: Bond Ratings and Prices A corporate bond with a 6.5 percent coupon has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 8.5 percent. What will be the change in the bond's price in dollars and percentage terms? (Assume interest payments are semiannual.) (LG7-7)

Reference no: EM132443088

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