Use the following information to answer this question. In your answers, ignore the negative sign, if any. Yield on Bond A Yield on Bond B Yield on Bond C 5.50% 6.50% 3.50% a) What is the yield spread between bonds A and B (in basis points)? b) What is the relative yield spread between bonds B and C? Bond C is your basis. c) What is the yield ratio between A and C? Bond C is your basis.

Use the following information to answer this question. In your answers, ignore the negative sign, if any. Yield on Bond A Yield on Bond B Yield on Bond C 5.50% 6.50% 3.50% a) What is the yield spread between bonds A and B (in basis points)? b) What is the relative yield spread between bonds B and C? Bond C is your basis. c) What is the yield ratio between A and C? Bond C is your basis.

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter7: Bonds And Their Valuation

Section: Chapter Questions

Problem 3DQ: Looking at the bond issue selected, why are the current yield and yield to maturity numbers...

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(a) Do you agree with the following statement, and explain why? “If two bonds have the same duration, then the percentage change in price of the two bonds will be the same for a given change in interest rates.” (b) Discuss the problems with the traditional bond pricing approach by using the yield to maturity. (300 words)
Explain what you see from the pricing calculations. How do the two bonds differ? Bond C Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 10%*$1,000 = $100 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 Bond Z Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 0%*$1,000 = $0.00 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 years Bond A Bond Z 4 $1,012.79 $693.04 3 $1,010.02 $759.57 2 $1,006.98 $832.49 1 $1,003.65 $912.41 0 $1,000.00 $1,000.00
Suppose you are an analyst with the following data: rRF = 5.5%, rM - rRF=6%, b = 0.8,D1 = $1.00, P0 = $25.00, g = 6%, and rd = firm’s bond yield = 6.5%. What is this firm’scost of equity using the CAPM, DCF, and bond-yield-plus-risk-premium approaches?Use the midrange of the judgmental risk premium for the bond-yield-plus-risk-premiumapproach.
Which of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.
1)Which of the following is NOT true regarding bonds? Group of answer choices A)If a bond is selling at a discount, then the current yield is greater than the yield-to-maturity. B)An increase in market interest rates leads to a decrease in bond prices. C)If the coupon rate on a bond is lower than the yield-to-maturity, the bond sells at a discount. D)If the coupon rate on a bond equals the yield-to-maturity, then the bond sells at par. 2)When calculating free cash flows, which of the following statements is NOT true regarding the depreciation? Group of answer choices A)As an accrual, depreciation does not factor into free cash flow calculations. B)Depreciation is an accrual, not a cash flow. C)Depreciation create a tax shield. D)Depreciation is first removed and the subsequently added back in when calculating free cash flows.
Explain whether the following statements are true or false. Justify your answer and solve all the three parts of this question a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond. b) If rating agencies downgrade a bond, the yield to maturiy on the bond will increase. c) the longer the duration of the bond, the higher will be the reinvestment risk
a) All things being equal If a bond's coupon rate is higher than its yieldto maturity (YTM), is the bond selling at a discount, premium or par?b) All things being equal If a bond's coupon rate is lower than its yield tomaturity (YTM), is the bond selling at a discount, premium or par?c) All things being equal If a bond's coupon rate is equal to its yield tomaturity (YTM), then is the bond selling at a discount, premium or par?d) All else being equal, the longer the term to maturity, the greater orthe lower the duration?f) All else being equal, the higher the coupon rate on the bond, theshorter or the longer the duration of the bond?
Explain whether the following statements are true or false. Justify your answer. a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond. b) If rating agencies downgrade a bond, the yield to maturiy on the bond will increase.
1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.
i. How would you expect the price of the callable bond to compare to that of the non-callable bond? Give an explanation for your answer, using a maximum of two sentences ii. If interest rates were to rise dramatically, how would you expect this to impact the price differences between the two bonds; increase, decrease or stay constant? Justify your response in a single sentence iii. Explain the advantage of issuing a callable bond compared to a non-callable?
Which bond in the table is has a higher price? Bond yield coupon A 5% 6% B 5% 4% Select one: a. not enough information to determine b. Both Bond A and Bond B c. Bond B d. Bond A
What is the current yield? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Round your answer to two decimal places. % Is this yield affected by whether the bond is likely to be called? If the bond is called, the capital gains yield will remain the same but the current yield will be different. If the bond is called, the current yield and the capital gains yield will both be different. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. If the bond is called, the current yield will remain the same but the capital gains yield will be different. If the bond is called, the current yield and the capital gains yield will remain the same.