The yield to maturity of the bond. Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

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Answer 1

Question

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

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Assume a company plans to make two new bonds issues at the same time. Both will have the same coupon rate and maturity. The firm plans to sell the regular bond at face value, that is, at $1,000 per bond. The second bond will be callable. What must be true about the sale price of this second bond? The price of the bond will have to be lower than $1,000. The price of the bond will have to be higher than $1,000. The price of the bond will have to be equal to $1,000. The price of the bond will be whatever the firm wants it to be. It is not possible to make estimates about the price of the second bond.

Please kindly assist d & e. Thank you. Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has five (5) years to maturity. Please demonstrate your understanding of interest rates risk by answering the following questions :a. Discuss which bond will trade at a higher price in the marketb. Discuss what happens to the market price of each bond if the interest rates in the economy go up.c. Which bond would have a higher percentage price change if interest rates go up?d. Please substantiate your argument with numerical examples.e. As a bond investor, if you expect a slowdown in the economy over the next 12 months, what would be your investment strategy? Provide your explanations and definitions in detail and be precise.

This activity has two parts, please answer both Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has five (5) years to maturity. Please demonstrate your understanding of interest rates risk by answering the following questions : Discuss which bond will trade at a higher price in the market Discuss what happens to the market price of each bond if the interest rates in the economy go up. Which bond would have a higher percentage price change if interest rates go up? Please substantiate your argument with numerical examples. As a bond investor, if you expect a slowdown in the economy over the next 12 months, what would be your investment strategy? Familiarity with random variables is essential to understand the basics of portfolio theory. Given that CLA2 assignment is about portfolio formation, you need to strengthen your skills in dealing with random variables. Please review and explain the…

Answer 2

Question

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

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Answer 3

Question

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

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Answer 4

Question

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

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Answer 5

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 6

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 7

Chapter 6, Problem 33P

a.

Summary Introduction

To determine: The yield to maturity of the bond.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond, which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 8

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 9

b.

Summary Introduction

To determine: The expected return on investment if there is no default

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 10

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 11

c.

Summary Introduction

To determine: The expected return on investment if there is a 100% probability of default and recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 12

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 13

d.

Summary Introduction

To determine: The expected return on investment if the default probability is 50%, the likelihood of default is greater in bad times than good times, and, in the case of default, recovery of 90% of the face value is possible.

Introduction:

A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 14

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 15

e.

Summary Introduction

To determine: Risk-free interest rate

Introduction: A yield to maturity (YTM) is the rate of return projected for a security or a bond which is apprehended till its maturity period. It is also considered as the internal rate of return (IRR) for a security or bond and it likens the current estimation of a bond’s future cash flow to its present market cost. A coupon payment is the yearly interest payment that is remunerated to a bondholder by the issuer of the bond, until the point that the debt obligation matures. The coupon payments are cyclic payments of interest to the bondholders.

Answer 16

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Answer 19

Ch. 6.1 - What is the relationship between a bonds price and...Ch. 6.1 - The risk-free interest rate for a maturity of...Ch. 6.2 - If a bonds yield to maturity does not change, how...Ch. 6.2 - Prob. 2CC Ch. 6.2 - How does a bonds coupon rate affect its...Ch. 6.3 - How do you calculate the price of a coupon bond...Ch. 6.3 - How do you calculate the price of a coupon bond...Ch. 6.3 - Explain why two coupon bonds with the same...Ch. 6.4 - There are two reasons the yield of a defaultable...Ch. 6.4 - What is a bond rating?

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