311.Subject :- Finance With a callable bond, the yield to maturity can often be misleading if it is likely that the bond will be called. In general, abond will only be called when interest rates have fallen since the company issued the bond. In this case, the company willrefund the bond if possible (and profitable) for the company. Refunding simply means that the company issues new bondswith a lower coupon rate and repurchases (calls) the outstanding bonds with a higher coupon rate. Suppose we have abond that has a fixed call price and the following information:Settlement date:4/15/2014Maturity date:Coupon rate:Coupons per year:Price (percent of par):Redemption value (percent of par): 100Call premium (percent of par):7Next call date:10/15/20289.00%2117.410/15/2018Required:1. You are required to complete the solution in the Excel sheet by applying the appropriate formula for the calculation ofthe yield to maturity of this bond. The solution and working from the Excel sheet need to be exported and saved inWord format.2. Calculate the yield to call of this bond by using an Excel sheet by applying the appropriate formula for the calculationof the yield to call of this bond.

Here,Settlement Date15-04-14Maturity Date15-10-28Coupon Rate9%Coupons per year2Price (Percent of…

With a callable bond, the yield to maturity can often be misleading if it is likely that the bond will be called. In general, a bond will only be called when interest rates have fallen since the company issued the bond. In this case, the company will refund the bond if possible (and profitable) for the company. Refunding simply means that the company issues new bonds with a lower coupon rate and repurchases (calls) the outstanding bonds with a higher coupon rate. Suppose we have a bond that has a fixed call price and the following information: 4/5/2014

With a callable bond, the yield to maturity can often be misleading if it is likely that the bond will be called. In general, a bond will only be called when interest rates have fallen since the company issued the bond. In this case, the company will refund the bond if possible (and profitable) for the company. Refunding simply means that the company issues new bonds with a lower coupon rate and repurchases (calls) the outstanding bonds with a higher coupon rate. Suppose we have a bond that has a fixed call price and the following information: 4/5/2014

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. Market interest rates rise sharply. b. Market interest rates decline sharply. c. The company's nancial situation deteriorates signicantly. d. Ination increases signicantly. e. The company's bonds are downgraded. Please explain.
How are investors of zero-coupon bonds compensated for making such an investment? A. Such bonds have a lower face value as compared to other bonds of similar term. B. Such bonds are purchased at their face value and sold at a premium on a later date. C. Such bonds are purchased at a discount and repaid at face value on maturity. D. Such bonds make regular interest payments.
Which of the following events would make it more likely that a company would choose to call it’s outstanding callable bonds? An increase in market interest rates. An increase in the call premium. All the other statements are correct. The company’s bonds are downgraded. A reduction in market interest rates.
Which of the following statements is CORRECT? a. Convertible bonds generally have lower coupon rates than non-convertible bonds of similar default risk because they offer the possibility of capital gains. b. A debenture is a secured bond that is backed by some or all of the firm's fixed assets. c. Junk bonds typically provide a lower yield to maturity than investment-grade bonds. d. A company's subordinated debt has less default risk than its senior debt. e. Senior debt is debt that has been more recently issued, and in bankruptcy it is paid off after junior debt because the junior debt was issued first.
For the holder of a fixed-rate coupon bond, reinvestment risk is a bigger problem during a period of falling interest rates than during a period of rising interest rates. Why, Explain.
If investors are uncertain that a corporate bond issuer will make all of the bond payments as promised, the investors will demand a higher yield in the form of: Select one: a. An increased real rate of interest. b. An increased interest rate risk premium. c. An increased default risk premium. d. An increased inflation premium. e. An increased liquidity risk premium.
Which of the following statements is correct? Group of answer choices The actual capital gains yield for a one-year holding period on a bond can never be greater than the current yield on the bond. All of these statements are false. The price of a coupon bond is determined primarily by the number of years to maturity. The discount or premium on a bond can be expressed as the difference between the coupon payment on an old bond which originally sold at par and the coupon payment on a new bond, selling at par, where the difference in payments is discounted at the new market rate. On a coupon paying bond, the final interest payment is made one period before maturity and then, at maturity, the bond's face value is paid as the final payment.
A "discount bond" has a price less than face value because ________________. A) the issuing firm has a high probability of default B) the issuing firm has a low probability of default C) the bond coupon rate is greater than the yield to maturity D) the bond coupon rate is less than the yield to maturity
Under normal conditions, which of the following would be most likely to increase the coupon rate required for a bond to be issued at par? a. The rating agencies change the bond's rating from Baa to Aaa. b. Adding additional restrictive covenants that limit management's actions. c. Adding a sinking fund. d. Adding a call provision. e. Making the bond a first mortgage bond rather than a debenture.
Under which of the following situation, would a firm most likely to call its outstanding callable bonds? Group of answer choices a)The firm has financial distress. b)The company’s bonds are downgraded. c)The market interest rate increases d)The market interest rate declines
Which of the following statements is correct about corporate bond/ A.The corporate bond with AAA rating has zero default risk.All else equal,the corporate bond with better credit rating has lower yield to maturity B.Corporate bonds bonds have zero default risk and fixed coupon payments C.The corporate bond credit risk is assessed by the credit rating agency D.Default risk referto the likelihood that firm will walk away from the its bond obligations involuntarily
One often finds that a company’s bonds have a higher yield than its preferred stock, eventhough an investor considers the bonds to be less risky than the preferred. What causes thisyield differential?

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