If the coupon rate of a bond is 3.05% and the yield to maturity is 6.48%, and if a bondholder has a marginal tax rate of 21%, determine their after-tax yield in this case.
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If the coupon rate of a bond is 3.05% and the yield to maturity is 6.48%, and if a bondholder has a
marginal tax rate of 21%, determine their after-tax yield in this case.
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- Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?When you use the effective annual yield on a semi-annual coupon bond to price the corresponding annual coupon bond, do you get the same price?Given the yield on a 3-year zero-coupon bond is 8.2% and forward rates of 6.3% in Year 1 and 7.1% in Year 2, what must be the forward rate in Year 3?
- A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year). For each maturity year compute the zero-coupon bond prices, continuously compounded zero-coupon bond yields, the par coupon rate, and the 1-year implied forward rate. Show work and discuss your result. Briefly discuss who uses Zero coupon bonds and why?Given the following information, what is the approximate convexity measure for the bond if the yield changes by 90 basis points? Coupon rate 5% YTM 7% Maturity (in years) 5 FV $1,000
- Which of the following statements is true? A. Yield spread is reflected in the size of the bid-ask spreads. B. Issuer credit ratings, or corporate family ratings, reflect a debt issuer’s overall creditworthiness and typically apply to a firm’s senior secured debt. C. An investor with an investment horizon of 6 years buys a bond with a modified duration of 6.0. if the yield-to-maturity (YTM) is 0.0214, this investment will have no duration gap. D. Compared to long-term duration bonds, short-term duration bonds have narrow bid-ask spreads.A bond for the Chelle Corporation has the following characteristics: Maturity - 12 years Coupon - 10% YTM - 9.5% Macaulay duration - 5.7 years Convexity – 48 Noncallabe Calculate the approximate price change for this bond using both duration and convexity in the computation, one again assuming that its yield to maturity decline by 300 basis points.If the pure expectations theory of the term structure is correct, which of the following statements would be CORRECT? a. If a 1-year Treasury bill has a yield to maturity of 7% and a 2-year Treasury bill has a yield to maturity of 8%, this would imply the market believes that 1-year rates will be 7.5% one year from now. b. The yield on a 5-year corporate bond should always exceed the yield on a 3-year Treasury bond. c. Interest rate (price) risk is higher on long-term bonds, but reinvestment rate risk is higher on short-term bonds. d. An upward-sloping yield curve would imply that interest rates are expected to be lower in the future. e. Interest rate (price) risk is higher on short-term bonds, but reinvestment rate risk is higher on long-term bonds
- Which of the following statements is CORRECT? a. If a coupon bond is selling at par, its current yield equals its yield to maturity. b. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity. c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond. d. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium. e. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.Consider a $100 par value bond that has an 8% coupon rate, pays a semi-annual coupon, matures 2 years from today, and is priced to yield 6%. Calculate the Macauly and modified durations as a present value weighted average of the time to maturity. For the bond above, calculate the dollar duration and the price value of a basis point. For the bond above, estimate the percent and dollar price changes associated with a 0.5% increase in yield.A 6% coupon bond with semiannual coupons has a convexity (in years) of 120, sells for 80% of par, and is priced at a yield to maturity of 8%. If the YTM increases to 9.5% what is the predicted contribution of convexity to the percentage change in price due to convexity?
