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1. ABC has issued a $1000 par bond with 25 years to maturity, 7% coupon rate, and semi-annual payments. Calculate the present value if the bond if the YTM is 7%.
2. How would the answer to #1 change if the YTM is 9%?
3. How would the answer to #1 change if the YTM is 5%?
4. What bond relationship are Problems 1-3 discussing?
1. ABC issued 12-year bonds at a coupon rate of 8% with semi-annual payments. If the bond currently sells for $1050 of par value, what is the YTM?
2. ABC issued 12-year bonds 2 years ago at a coupon rate of 8% with semi-annual payments. If the bond currently sells for 105% of par value, what is the YTM?
3. A bond has a quoted price of $1,080.42. It has a face value of $1000, a semi-annual coupon of $30, and a maturity of five years. What is the current yield? What is the yield to maturity?
1. The 6 percent annual coupon bonds of Greentree, Inc. are selling for $1,020, have a face value of $1,000, and have a yield to maturity of 5.43 percent. How many years will it be until these bonds mature?
2. A 7 percent semi-annual coupon bond is priced at $1,028.33. The bond has a $1,000 face value and a yield to maturity of 6.49 percent. How many years will it be until this bond matures?
3. Suppose taxable bonds are currently yielding 8%, while at the same time, the munis of comparable risk and maturity are yielding 6%. Which is more attractive to an investor in the 40% tax bracket?
4. Refer to #1 and determine the break-even tax rate. How do you interpret this rate?
5. Both a default-free two-year government bond and a two-year corporate bond pay a 7% coupon rate. However, the government bond sells at par (i.e. $1000) and the corporate bond sells at $982.16. What is the yield (YTM) on these two bonds? Assume annual payments
6. Refer to #3. Why is there a difference in the yields?
1. What is the difference between the coupon rate and the YTM?
2. How does a bond issuer decide on the coupon rate to set on its bonds?
3. What is the relationship between bond prices and its YTM?
4. What is a discount bond? a premium bond?
5. All else remaining same, which has more interest rate risk, a long-term bond or a short-term bond?
6. All else remaining same, which has more interest rate risk, a low-coupon bond or a high-coupon bond?
7. A Bond is currently selling for $940 and has a coupon rate of 7%. Should the YTM be higher or lower than 7%?
8. A Bond is currently selling for $1040 and has a coupon rate of 8%. Should the YTM be higher or lower than 8%?
1. ABC has $1,000 face value bonds outstanding. These bonds pay interest semi-annually, mature in 10 years, and have a 7.5 percent coupon. The current price is quoted at 99.59 percent of par value. What is the yield to maturity? What is the current yield?
2. Refer to #1 above. Suppose the bonds are callable in 5 years at 105 percent of par value, what is the yield-to-call?
3. ABC’s bonds have a 9.5 percent coupon and pay interest semi-annually. Currently, the bonds are quoted at 106.315 percent of par value. The bonds mature in 12 years. What is the yield to maturity? What is the current yield?
4. Refer to #1 above. Suppose the bonds are callable in 5 years at 110 percent of par value, what is the yield-to-call?
5. When is a company likely to make a call – when the interest rates go up or go down? why?
6. What is a sinking fund provision?
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