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Unformatted text preview: QUIZ 4 NAME: 1. Assume that David Bowie has issued Bonds that have 12 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 703 British rocker who had hits such
as Ziggy stardust and space oddity). The current market price is $950. 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 tlée time line for these Bowie Bonds. n :— 1L,
F—ﬂﬂ—aﬂ—“ﬁ ————>‘ I
lamb—b +0 4—0 [:30 1. Find the Yield to Maturity 1 ti gel _, C _. M ,
W T ' 0+3)“ 04")”
, o v +Jp,q,e.._ a\
CWT? 3:9” " (Hg029 04—7)“? L
tall397: azmizetBJDC») gee o 2. What is the return you ‘should’ get on these Bonds? RRR = to: CGWQAQ L
\ \
3. What is the return you ‘would’ get? 3W: 868% \>) 4. What is the price of these Bonds? ‘in96 can/QM) (’9 \ 5. What is the Value of these Bonds?
1’0 +7 >10 0 +3) V) :oto O‘tO'DDI’? ““032"  6. By how much ar the Bonds over/under priced? 0waqu L? 47513—48510,; @ II. This is a different question. Assume that the Bonds of a company have 6% coupon H
rate, the market price is $1100, and the time till maturity is 2 years. Further assume that I the market 1s in equilibrium. —————————_§ KR? z/BTM ?0‘ 5V 1. Find the yield to— —maturity. o 1
1—————+———1
PO:HD"D go be
190%) 1
EE» ’ ,6 +FVr two: é? "(H1)
7 0+0 9+9 9*— “
2 Is the Bond Under/ vet/Correctly priced? Owe/ﬂea kQickoQ '8 I h? 3. Is the Bond trading at Discount/Par/Premium? if? B 580732” %?7WW'$ ( XA/ Inls lmpiy _, ﬂy‘caaahm. N? I IV. If the bond is trading at par, what is the Current Yield? 1 COka
@C‘ngﬂ; R to $ [
.—. 3m V. Provide the following current numbers 1. Discount Rate (D , 7 5X ' —~‘~> ) 2 Duration of Unemployment 53% week; 3. Inﬂation rate ...
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 Winter '07
 Yatin
 Finance

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