Brealy Chapter 23

Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

a. The Yield to Maturity (YTM) is the nominal rate of return which investors would realize if they held the bond to maturity and the bond did not default.

academic year interest rate of 3.76 percent would pay a 5,032 dollars interest over 10 years,

Its coupon rate is 8.3%. Its value at maturity is $1,000. It matures in 4 years. Its yield to maturity is currently 5.3%. The modified duration of this bond is ______ years.

Assuming the market interest rate on the issue date is 6%, the bonds will issue at $537,194.

2. If you had a payment that was due you in 5 years for $50,000 and you could earn a 5% rate of return, how much

Answer: The Coupon Rate is a generally fixed and is known as the stated rate of a bond that determines the periodic interest payments. As stated in the textbook, the annual coupon dividen by the face value is called the coupon rate of the bond. The YTM rate of return anticipated on the bond if it is held until the maturity Date. YTM is considered a long-term bond yield expressed as an annual rate.

Which of the following is the most likely order of the interest rates (yields to maturity) of the bonds from highest to lowest?

The semi-annual compounded interest rate is 5.2% (a six-month discount rate of 5.2/2 = 2.6%). (15 points)

If the company benefits from the provision of the bond, then the coupon rate will be higher. If the bondholder’s benefit, then the bond will have lower coupon rate.

That rate was determined by the rating of the bond. Bond ratings are derived from a

Through this method, we obtained theoretical yields of the 4.25% coupon bond and 10.625% coupon bond to be 2.899% and 2.639% respectively. The corresponding theoretical prices of the bonds are $108.27 for the 4.25% coupon bond and $149.31 for the 10.625% coupon bond (see Table 1 above).

The yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. The relationship between yield and maturity is referred to as the term structure of interest rates. The Treasury yield curve is the base or benchmark for pricing bonds and setting yields in other areas of the debt market. Moreover, the shape of the yield curve is constructed from U.S Treasury strips which are zero-coupon

I think other classmates replied well. As Zach mentioned, Table 5-1 clearly shows the bond with a lower rating pays the higher yield. The bond rating is determined by credit risk underlying an bond issue or an issuing company. Rating agency may select some financial ratios that are believed to affect the default risk of a subject company. Those ratios are liquidity ratios, asset management ratios, profitability ratios, and debt-related ratios that are believed to affect the credit risk of a bond issue or an issuing company. Then, those ratios are blended using appropriate statistical methods to create a scoring index model which determines credit rating of an issuing company and/or its security issue.

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