Q4A(1) - QUIZ 4 NAME: 1. Assume that David Bowie has issued...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3
This is the end of the preview. Sign up to access the rest of the document.

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 semi-annually. 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 L25-57 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—to-maturity. ~ / 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 ...
View Full Document

Page1 / 3

Q4A(1) - QUIZ 4 NAME: 1. Assume that David Bowie has issued...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online