Answered: Notice also that prices are stated…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 24E

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Bond listings and yield spreads

The following bond list is from the business section of a financial newspaper on January 1, 2016. Assume that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon and the coupon rate is in the column labeled Coupon.

The Last Price and Last Yield columns indicate each bond’s price and YTM at the end of trading. EST Spread indicates the bond’s spread above the relevant US Treasury benchmark, expressed as a percentage. UST indicates which US Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Notice also that prices are stated relative to a par value of $100. Assume all bonds have the same default premium.

Fill in the value of Powell Co.’s bonds.

Company	Coupon	Maturity	Last Price	Last Yield	EST Spread	UST (Years)	EST Volume (1000s)
Vandelay Inc.	8.25%	01-01-2026	$97.87	8.57%	2.37%	10	59,725
Side Corp.	5.80%	01-01-2021	$99.22	5.98%	0.58%	5	52,930
Acme Inc.	8.98%	01-01-2026	$104.07	8.37%	2.17%	10	46,932
Wizard Co.	9.63%	01-01-2046	$88.14	10.98%	4.03%	30	45,120
Powell Co.	4.13%	01-01-2021	Q1. ____ (Answer here)	6.26%	0.86%	5	43,960

If you were to calculate the yield on a security with a 10-year US Treasury security, the yield will be equal to Q2. _____.

Q3. Which bond is trading at a premium?

a. Wizard Co.

b. Powell Co.

c. Vandelay Inc.

d. Acme Inc.

Q1. Option 1 $90.98 or $92.86 or $87.46 or $90.98

Q2. Option 1 2.17% or 2.37% or 4.30% or 6.20%

Please answer with the options provided.

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