COMM 371 Assignment 1 SOLUTIONS - Assignment 1 Yan(Alyssa Rong#16260135 1 define bonds a Catastrophe bonds pay higher coupon but do not have or have a

COMM 371 Assignment 1 SOLUTIONS - Assignment 1 Yan(Alyssa...

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Assignment 1 Yan(Alyssa) Rong #16260135 1.define bonds: a.Catastrophe bonds: pay higher coupon but do not have or have a little of payment if catastrophe happensb.Eurobond: a bond issued in a currency other than the country or market that it is issuedc.Zero-coupon bond: pay only principal with zero coupond.Samurai bond: Japanese bond issued in Tokyo by non-Japanese with yen dominated e.Junk bond: rated BBB or above, the new firm that seek financial investment to start up, showing a greater risk with a higher return on bonds.f.Convertible bond: can be exchanged for shares of the firm’s common stockg.Serial bond: bond that has a serial of maturity days h.Equipment obligation bond: A bond that is issued with specific equipment pledged as collateral against the bondi.Original issue discount bond: Original issue discount bonds are less common than coupon bonds issued at par. These are bonds that are issued intentionally with low coupon rates that cause the bond to sell at a discount from par valuej.Indexed bond: Indexed bonds make payments that are tied to a generalprice index or the price of a particular commodityk.Callable bond: the bond that can be repurchased before the maturity datel.Puttable bond: Give the holder an option to retire or extend the bond2.a. (100,000/97,645)^4 -1 = 0.100b. (1.05)^2 -1 = 0.1025Therefore the coupon bond has a higher effective annual interest rate3.the effective annual interest rate is (1+0.08/2)^2 – 1 = 0.0816. If it is selling at par then it must offer the same yield which is 8.16%.4.The callable one requires the payment of 105% of the face value if the issuing firm is calling back. 105% one is selling at lower price because the call provision is more valuable to the issuing firm. Therefore, it has higher yield.5.The bond price will be lower. Since when time is passed, the price will gradually decrease and approach to par(as for now the price of bond is above par since coupon rate is higher than yield).6.When n=3, PV=-953;FV = 1000; PMT= 80; COMP iAnd the YTM = 9.89%FV = ($80 *1.1 *1.12) + ($80 *1.12) + $1080 = $1268.16Then find the realized compound yield = (FV/PV)^(1/T) – 1 = (1268.16/953.1)^(1/3) – 1 = 9.99% And the YTM = 9.89%FV = ($80 *1.1 *1.12) + ($80 *1.12) + $1080 = $1268.16
Then find the realized compound yield = (FV/PV)^(1/T) – 1 = (1268.16/953.1)^(1/3) – 1 = 9.99% 7.a. zero coupon: FV = 1000, N = 10, PMT = 0, I/YR = 8% so the present value is 463.17

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