The relationship that exists between the yield to maturity and the bond price . Introduction: A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity. If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond . Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures. Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

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Answer 1

Question

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

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QUESTION EIGHTa) What is the relationship between the price of a bond and its YTM? b) Explain why some bonds sell at a premium over par value while other bonds sell at a discount.What do you know about the relationship between the coupon rate and the YTM for premiumbonds? What about for discount bonds? For bonds selling at par value? c) What is the relationship between the current yield and YTM for premium bonds? For discountbonds? For bonds selling at par value? SEBO PLC just paid a dividend of K2.75 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on SEBO stock is 13 percent, what will a share of stock sell for today?

What is the relationship between bond prices and interest rates? Verbally describe how this relationship comes about. How can we use this relationship to estimate the value of a bond?

How do you calculate the price of bonds if you know their par value, contract rate, and market rate?

Answer 2

Question

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

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Answer 3

Question

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

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Answer 4

Question

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

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Answer 5

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

Answer 6

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

Answer 7

Chapter 6, Problem 15CTCR

a)

Summary Introduction

To determine: The relationship that exists between the yield to maturity and the bond price.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Bond price refers to the price at which the bond the investors buy and sell in the market. It is the sum of present value of the lump sum amount received at the end of the maturity and the coupon payments.

Answer 8

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Answer 9

b)

Summary Introduction

To determine: The reason why bonds sell at a premium or discount and the relationship between the yield to maturity and the coupon rate of premium, discount, and par bonds.

Introduction:

A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.

If the bond sells at a steep discount during the issue and does not make any coupon payments during its life, then the bond is a zero coupon bond.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond if he or she holds the bond until the bond matures.

Answer 10

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

Answer 11

c)

Summary Introduction

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

Answer 12

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Answer 13

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Answer 14

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Answer 15

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Solution Summary: The author explains the relationship between the bond price and the yield to maturity.

Videos

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

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Chapter 6 Solutions

Solution Summary: The author explains the relationship between the bond price and the yield to maturity.

Videos

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds. Introduction: The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

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Chapter 6 Solutions

To determine: The relationship between the yield to maturity and the current yield of par, discount, and premium bonds.

Introduction:

The current yield of the bond is the annual coupon of the bond divided by the price of the bond.