(Question 2, p.348) Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount on interest of $800. Compute and enter in the spaces provided either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Bond Price Interest rate % $ ,000 8.9 10,000 11,000 6.2 From the completed table, we can generalize that the bond price and interest rate are (directly, inversely ) related.

(Question 2, p.348) Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount on interest of $800. Compute and enter in the spaces provided either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Bond Price Interest rate % $ ,000 8.9 10,000 11,000 6.2 From the completed table, we can generalize that the bond price and interest rate are (directly, inversely ) related.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter5: The Cost Of Money (interest Rates)

Section: Chapter Questions

Problem 7PROB

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If you asked your broker to purchase for you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain.
a. Reset the Data Section to its initial values. The price of this bond is 1,407,831. What would it be if there were only 9 or 8 years to maturity? Use the worksheet to compute the bond issue prices and enter them in the spaces provided. Bond issue price (9 years to maturity) __________________ Bond issue price (8 years to maturity) __________________ b. Compare these prices to the bond-carrying values found in the effective interest amortization schedule you originally printed out in requirement 3. Explain the similarity. c. Click the Chart sheet tab. The chart presented shows the price behavior of this bond based on years to maturity. Explain what effect years to maturity has on bond prices. Check your explanation by trying 8% as the effective rate (cell E10) and clicking the Chart sheet tab again. Also try 9%. When the assignment is complete, close the file without saving it again. Worksheet. Modify the BONDS3 worksheet to accommodate bonds with up to 20-year maturity. Use your new model to determine the issue price and amortization schedules of a 2,000,000, 18-year, 10% bond issued to yield 9%. Preview the printout to make sure that the worksheet will print neatly, and then print the worksheet. Save the completed file as BONDST. Hint: Expand both amortization schedules to 20 years. Expand the scratch pad to 20 years. Modify FORMULA1 in cell F17 to include the new ranges. Chart. Using the BONDS3 file, prepare a line chart that plots annual interest expense over the 10-year life of this bond under both the straight-line and effective interest methods. No Chart Data Table is needed. Put A23 to A32 in the Label format and then select A23 to A32, D23 to D32, and B40 to B49 as a collection. Enter all appropriate titles, legends, formats, and so forth. Enter your name somewhere on the chart. Save the file again as BONDS3. Print the chart.
OShea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000. From this information, we know that the market rate of interest was ________. A. more than 6% B. less than 6% C. equal to 6% D. cannot be determined from the information given.
An analyst observes a GUI & Co 6.625%, 5 year semi-annual pay bond trading at 103.164% of par (where par = $1,000). The bond is callable at 102.5 in 3 years and putable at 99 in 3 years. #3: what are the bond's current yield and yield to maturity? #4. What's the bond's yield to call and put? EC: Do you expect that the bond would be called and/or put? Why or Why not?
5. Compute the price of $94,580,761 received for the bonds by using the tables shown in Present Value Tables. (Round to the nearest dollar.) Present value of the face amount Present value of the semiannual interest payments Price received for the bonds
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
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A Rio Tinto corporate bond currently sells for $1,450, which gives it a yield to maturity of 7%. Its convexity is 455. Suppose that if the yield increases by 50 basis points, the price of the bond falls to $1,400. a. What is the modified duration of this bond? b. What is the duration of this bond?
Review the Bond Table below, all bonds have semi-annual payments. Security Coupon Rate Face Value Price 1-yr Treasury 0.00% $1,000 $965.90 5-yr Treasury 4.50% $1,000 $ 991.18 10 yr Treasury 5.00% $1,000 $ 976.94 5 yr Corporate 4.80% $1,000 $ 912.46 ( rated A) 10-year Corporate 8.40% $1,000 $1,044.66 (rated BBB) What price should you pay for a Corporate Bond with semi-annual payments, a 5 year maturity, a Default Rating of BBB, a Face Value of $1,000 and a coupon rate of 7.20%?
Give typing answer with explanation and conclusion A corporate bond makes payments of $96.70 semi-annually for ten years with a final payment of $2096.70. Which of the following best describes this bond? a. a 10-year bond with a face value of $2096.70 and a coupon rate of 9.7% with semi-annual payments b. a 10-year bond with a face value of $2096.70 and a coupon rate of 9.2% with semi-annual payments c. a 10-year bond with a face value of $2000 and a coupon rate of 9.2% with semi-annual payments d. a 10-year bond with a face value of $2000 and a coupon rate of 9.7% with semi-annual payments