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Unformatted text preview: QUIZ 4 NAME: 1. Assume that David Bowie has issued Bonds that have 7 years left till maturity and
carry a coupon rate of 8% paid semiannually. He has used his albums as a collateral (for
those of you not familiar with David Bowie — he is a 705 British rocker who had hits such
as Ziggy stardust and space oddity). The current market price is $850. Assume the
required rate to be 10%. (In 1997 Bowie really used his albums as a ‘collateral’ to issue Bonds with a total Face
value of $55 million which were bought primarily by the Prudential Insurance company —
someone normally not associated with rock stars). Draw the time line for these Bowie Bonds. __ ) 17
o l L Y) ’ 3.332%5—0 4‘0 4'0 4’0 \ 1. Find the Yield to Maturity r] v ww>v
V 7’ ,9... _ i + “El,” 1
1) ’L I 0+? D” l 000 r
W : 40 F ’i 2—— I
T“ i O Hqu OH L2557 grimly‘1 2. What is the return you ‘should’ get on these Bonds? :ERR: “37° I WM" 3. What is the return you ‘would’ get? 4. What is the price of these Bonds? :i'Sys’O Qatva 5. What is the Value of these Bonds? : :12.” — ‘
W owe/21 (H043 L’ ﬁme 6. By how much are the Bonds over/under priced? *1 $ ‘91
wcgaﬁu‘uapt 19‘} iqoi‘m‘ gm 3 Si‘oi. II. This is a different question. Assume that the Bonds of a company have 6% coupon
rate, the market price is $1100, and the time till maturity is 2 years. Further assume that the market is in equilibrium. 3 _ ~ .
1. Find the yield—tomaturity. ~ / P , V 0AM Q Pv; LEW 4—.— +7“:
‘6”
(00‘ 0+ 0" (ii—2’3“?
E M, 4...}. +100 0,
"'17 (I + '0 (1+2?) 2‘ 2. Is the Bond Under/Over/ Correctly priced? Cear'redﬁa PHLU‘L ,5 (19/0 : 3. Is the Bond trading at Discount/Par/Premium? R) 7 PM . \H ‘3
,Y, .p 3,. III. If the coupon rate is the same as the Opportunity Cost of Investing in the Bond, What
does this imply? Wm Valwt ofﬂﬁ 130n1£=5h0©0 IV. If the bond is trading at par, what is the Capital Gains Yield? V. Provide the following current numbers 1. PrimeRate .. a
3 ' 2/5” 1 2. Rate of Unemployment b
7 (a 3. Inﬂation rate
\ I ‘ ,L ...
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 Winter '07
 Yatin
 Finance

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