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Q4B(1) - QUIZ 4 NAME 1 Assume that David Bowie has issued...

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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 semi-annually. 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” " (Hg-029 04—7)“? L tall-397: azmizet-BJDC») 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 $1100, and the time till maturity is 2 years. Further assume that I the market 1s in equilibrium. ——————-———_§ KR? z/BTM ?0‘ 5V 1. Find the yield- -to— —maturity. o 1 1—————+--——-—1 PO:HD"D go be 190%) 1 EE» ’ ,6 +FVr two: é? "(H-1) 7 0+0 9+9 9*— “ 2 Is the Bond Under/ vet/Correctly priced? Owe/flea k-QickoQ '8 I h? 3. Is the Bond trading at Discount/Par/Premium? if? B 580732” %?7WW'$ ( 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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