Question 1

The outstanding bonds of International Plastics mature in 4 years and pay semiannual interest payments of $32.50 on a $1,000 face value bond. The bonds are currently selling for $1,008.64. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.

Accepted Answer

The coupon rate is calculated as (32.50 * 2) / 1000 = 6.50%. The current yield is (65 / 1008.64) * 100 = 6.44%. The yield to maturity is calculated using a financial calculator or formula, resulting in approximately 6.25%.

Question 2

You own a 7 percent, semiannual coupon bond that matures in 8 years. The par value is $1,000 and the current yield to maturity is 7.6 percent. What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

Accepted Answer

The correct answer is A.The percentage change in the price of a bond is given by the following formula:%ΔP = - (ΔYTM / (1 + YTM/2)^2n) * (P / C)where:%ΔP is the percentage change in the price of the bondΔYTM is the change in the yield to maturityYTM is the yield to maturityn is the number of years to maturityP is the par value of the bondC is the annual coupon paymentIn this case, we have:ΔYTM = 75 basis points = 0.75%YTM = 7.6%n = 8P = $1,000C = $70Plugging these values into the formula, we get:%ΔP = - (0.75% / (1 + 7.6%/2)^2*8) * (1000 / 70)%ΔP = -4.37%Therefore, the percentage change in the price of the bond will be -4.37%.

Question 3

Cochran's Furniture Outlet is issuing 30-year, 10 percent callable bonds. These bonds are callable in 5 years with a call premium of $50. The bonds are being issued at par and pay interest semi-annually. What is the yield to call?

Accepted Answer

The yield to call is calculated based on the bond being called in 5 years with a call premium. The semi-annual interest payments and the call premium are used to determine the yield to call, which is 10.78 percent.

Question 4

A $1,000 face value bond is selling for $1,016.36. The bond pays interest semiannually and has 3.5 years to maturity. The yield to maturity is 5.48 percent. The current yield is _____ percent and the coupon rate is _____ percent.

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ec_b14a_b3c7_5bddae31a452_TB1223_00 Current yield = ($30 × 2)/$1,016.36 = 5.90 percent
Coupon rate = ($30 × 2)/$1,000 = 6.0 percent

Question 5

You are considering two bonds. Both have semi-annual, 8 percent coupons, $1,000 face values, and yields to maturity of 7.5 percent. Bond S matures in 4 years and Bond L matures in 8 years. What is the difference in the current prices of these bonds?

Accepted Answer

11ea6d0e_c3ec_ff6e_b3c7_ede192ba7fb0_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_267f_b3c7_dbddf583b172_TB1223_00 11ea6d0e_c3ed_2680_b3c7_7307a7cf1e82_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_2681_b3c7_a10135286ce3_TB1223_00 Difference = $1,029.68 − $1,017.01 = $12.67

Question 6

Green Roofing Materials has 7.5 percent bonds outstanding that are currently priced at $1,068 each. The bonds pay interest on December 1 and June 1. What is the dirty price of this bond if today's date is May 1? Assume a 360-day year.

Accepted Answer

Dirty price = $1,068 + [(.075 × $1,000)/2] × 5/6 = $1,099.25

Question 7

One year ago, you purchased a $1,000 face value bond at a yield to maturity of 9.45 percent. The bond has a 9 percent coupon and pays interest semiannually. When you purchased the bond, it had 12 years left until maturity. You are selling the bond today when the yield to maturity is 8.20 percent. What is your realized yield on this bond?

Accepted Answer

11ea6d0e_c3ee_3802_b3c7_ad9e51865f63_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ee_5f13_b3c7_8f4deb71e6f4_TB1223_00

Question 8

Alex purchased a $1,000 par value bond one year ago at a price of $1,008. At the time of purchase, the bond had 14 years to maturity and a 6 percent, semiannual coupon. Today, the bond has a yield to maturity of 6.5 percent. What is his realized yield as of today?

Accepted Answer

The realized yield is calculated based on the coupon payment received and the change in bond price. The bond paid a 6% semiannual coupon, so Alex received $30 in interest. The bond's price decreased due to the increase in yield to maturity, resulting in a small capital loss. The realized yield is approximately 0.86 percent.

Question 9

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision. The bonds mature in 6 years, have a 10 percent coupon, pay interest semiannually, and have a par value of $1,000. What is today's call price given that the applicable discount rate is 7.20 percent?

Accepted Answer

Using a financial calculator:

Question 10

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity. The bond has a face value of $1,000 and a market value of $878.50. What is the yield to maturity?

Accepted Answer

The first step is to calculate the semiannual coupon payment:
Coupon payment = 8.5% x $1,000 / 2 = $42.50

Next, we need to solve for the yield to maturity (YTM) using trial and error or a financial calculator. Since the bond is trading at a discount ($878.50 < $1,000), the YTM must be higher than the coupon rate.

Using trial and error, we can start with a guess of 10%. At 10%, the present value of the bond's cash flows is $905.06, which is still too high. We need to try a higher interest rate.

At 11%, the present value of the bond's cash flows is $881.68, which is closer to the market value of $878.50. We can try a slightly higher rate to see if we get even closer.

At 11.5%, the present value of the bond's cash flows is $876.89, which is very close to the market value. We can stop here and assume that the YTM is approximately 11.5%.

Therefore, the answer is D) 10.43 percent.

Question 11

A $1,000 par value bond is currently valued at $1,033.53. The bond pays interest semi-annually, has 6 years to maturity, and has a yield to maturity of 7.3 percent. The coupon rate is _____ percent and the current yield is _____ percent.

Accepted Answer

The answer of A $1,000 par value bond is currently...

Question 12

Blue Water Homes has 8 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually. These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75. What is the yield to call if the current price is equal to 103.25 percent of par?

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ed_e9db_b3c7_49cd5a7262bf_TB1223_00

Question 13

A bond has a $1,000 par value, semiannual interest payments of $40, and a current market value of $1,054. The bonds mature in 12.5 years. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.

Accepted Answer

Coupon rate = ($40 × 2)/$1,000 = 8.00 percentCurrent yield = ($40 × 2)/$1,054 = 7.59 percentYield to maturity = 7.33 percentUsing a financial calculator:

Question 14

You want to buy a bond that has a quoted price of $923. The bond pays interest semiannually on April 1 and October 1. The coupon rate is 6 percent. What is the clean price of this bond if today's date is June 1? Assume a 360-day year.

Accepted Answer

Clean price = Quoted price = $923

Question 15

You own a bond that pays semiannual interest payments of $40. The bond is callable in 3 years at a premium of $80. What is the callable bond price if the yield to call is 9.7 percent?

Accepted Answer

To find the callable bond price, we need to find the present value of all future cash flows, which include:

1) Semiannual interest payments of $40 for 3 years (6 payments in total)
PV of interest payments = 40[(1 - 1/(1 + 0.097/2)^6)/(0.097/2)] = 212.29

2) Call premium of $80 (paid at the end of year 3)
PV of call premium = 80/(1 + 0.097/2)^6 = 48.15

3) Face value of the bond (paid at maturity)
PV of face value = 1000/(1 + 0.097/2)^6 = 648.71

Therefore, the callable bond price is the sum of these PVs:

Callable bond price = PV of interest payments + PV of call premium + PV of face value
= 212.29 + 48.15 + 648.71
= $1,016.86

So, the best choice is B, $1,016.86.

Question 16

You are buying a bond at a quoted price of $887. The bond has a 8.0 percent coupon and pays interest semiannually on February 1 and August 1. What is the dirty price of this bond if today is April 1? Assume a 360-day year.

Accepted Answer

The answer of You are buying a bond at a...

Question 17

Ted owns a bond which is callable in 2.5 years. The bond has a 6 percent coupon, pays interest semiannually, has a par value of $1,000, and has a yield to call of 6.3 percent. What is the call premium if the bond currently sells for $1,044.54?

Accepted Answer

11ea6d0e_c3ed_9bb8_b3c7_e71dd0d5b99f_TB1223_00 CP = $60.00
Using a financial calculator:
 11ea6d0e_c3ed_c2c9_b3c7_bd131a4d8def_TB1223_00 Call Premium = 1060 - 1000 = $60

Question 18

Two bonds have a coupon rate of 7 percent, semi-annual payments, face values of $1,000, and yields to maturity of 7.4 percent. Bond S matures in 5 years and bond L matures in 10 years. What is the difference in the current prices of these bonds?

Accepted Answer

The answer of Two bonds have a coupon rate of...

Question 19

Alaskan Motors has outstanding bonds that mature in 14 years and pay $32.50 every 6 months in interest. The par value is $1,000 per bond and the market value is $981. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.

Accepted Answer

The coupon rate can be calculated as (Annual Interest Payment / Par Value) * 100%.

Annual Interest Payment = (32.5 * 2) = $65
Par Value = $1,000

Coupon Rate = (65/1000) * 100% = 6.50%

The current yield can be calculated as (Annual Interest Payment / Market Value) * 100%.

Current Yield = (65/981) * 100% = 6.63%

To calculate yield to maturity we need to use trial and error or a financial calculator. Using trial and error, we can find that the yield to maturity is approximately 6.71%.

Therefore, the correct answer is (B) 6.50; 6.63; 6.71.

Question 20

Will owns a bond with a make-whole call provision. The bond matures in 14 years but is being called today. The coupon rate is 9 percent with interest paid semiannually. What is the current call price if the applicable discount rate is 7.5 percent and the make-whole call provision applies?

Accepted Answer

To calculate the make-whole call price, we need to find the present value of the remaining cash flows of the bond, which includes the semi-annual coupon payments and the maturity value.

Step 1: Calculate the semi-annual coupon payment:
Coupon payment = (9% / 2) x $1,000 = $45

Step 2: Calculate the number of semi-annual periods remaining:
Time remaining = 14 years x 2 = 28 semi-annual periods

Step 3: Calculate the present value of the remaining coupon payments using the discount rate:
PV of coupons = $45 x [1 - (1 + 0.075/2)^(-28)] / (0.075/2) = $690.43

Step 4: Calculate the present value of the maturity amount:
PV of maturity = $1,000 / (1+0.075/2)^28 = $438.23

Step 5: Add the present values of the cash flows to get the make-whole call price:
Make-whole call price = PV of coupons + PV of maturity = $690.43 + $438.23 = $1,128.66

Therefore, the answer is E.

Quiz 10: Bond Prices and Yields

The outstanding bonds of International Plastics mature in 4 years and pay semiannual interest payments of $32.50 on a $1,000 face value bond. The bonds are currently selling for $1,008.64. The coupon rate is ___ percent, the current yield is _ percent, and the yield to maturity is ___ percent.