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1. award: 4 points 2. award: 4 points 3. award: 4 points Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? Interest rate risk premium Inflation premium Liquidity premium Taxability premium None of these is correct. Refer to section 6.7. Topic: Default risk premium The Lo Sun Corporation offers a 6 percent bond with a current market price of $879.36. The yield to maturity is 7.34 percent. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures? 23 years 17 years 15 years 16 years None of these answers is correct. Semi-annual interest rate = .0734 / 2 = .0367 (Note: t is the number of semi-annual periods) Dividing by $30, you get: 29.312 = {[1 – 1 / 1.0367 t ]/ .0367} + 33.3333 / 1.0367 t Multiplying by .0367, you get: 1.0758 = 1 – 1 / 1.0367 t + 1.2233 / 1.0367 t .0758 = .2233 / 1.0367 t 1.0367 t = .2946 t = ln.2946 / ln1.0367 = -1.2221 / .0360 = 30 semi-annual periods = 15 years Which one of the following bonds is the least sensitive to changes in market interest rates? 8 percent annual coupon, 4 year Assignment Print View http://ezto.mhhm.mcgraw-hill.com/hm_finance.tpx 1 of 11 7/21/2011 3:54 PM
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award: 4 points 5. award: 8 points 6 percent annual coupon, 4 year Zero-coupon, 10 year Zero-coupon, 4 year 6 percent annual coupon, 10 year Refer to section 6.1. Topic: Interest rate risk App Store Co. issued 15-year bonds one year ago at a coupon rate of 7.1 percent. The bonds make semiannual payments. Required: If the YTM on these bonds is 5.4 percent, what is the current bond price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).) Current bond price $ 1,165.51 ± 1% Explanation: To find the price of this bond, we need to realize that the maturity of the bond is 14 years. The bond was issued one year ago, with 15 years to maturity, so there are 14 years left on the bond. Also, the coupons are semiannual, so we need to use the semiannual interest rate and the number of semiannual periods. The price of the bond is: P = $35.50(PVIFA 2.70%,28 ) + $1,000(PVIF 2.70%,28 ) P = $1,165.51 Calculator Solution: Enter 14 × 2 5.4% / 2 ±$71 / 2 ±$1,000 N I/Y PV PMT FV Solve for $1,165.51 Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000, and the current date is April 15, 2010 . Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s) IOU (IOU) 9.50 Apr 15, 2030 91.615 ?? 1,835 Requirement 1: What is the yield to maturity of the bond? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Yield to maturity 10.51 ± 1% % Requirement 2: What is the current yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Assignment Print View
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