Chapter 7 & 8 Homework Assignment -- Answers

Financial Markets and Institutions (with Stock Trak Coupon)

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Unformatted text preview: Chapter 7 & 8 Homework Assignment 1. Opening the Wall Street Journal, you notice that the price of a Consolidated Chicanery, Inc. 9% corporate bond is quoted at $924. It is a U.S. company, so the payments are semiannual. Right now, there are 47 days remaining until the next coupon payment. Compute 1) accrued interest, and 2) the dirty price. 2. 67 days after the last coupon was paid, the dirty price on a 7% Megacorp. bond is $1,043.98. Calculate the clean price (quoted price) of this bond today. Clean Price = Dirty Price – Accrued Interest = $1,043.98 - $12.8846 = $1,031.0954 3. An 8.5% U.S. corporate bond has 27 years to maturity, and the YTM on bonds with similar default risk characteristics is 10.7%. What should this bond sell for? $42.5 PMT, 54 N, 5.35 I/Y, 1,000 FV → CPT PV = $806.7171 4. A 5% U.S. corporate bond has 14 years to maturity, and the bond is currently selling for $865.56. What is the yield to maturity of this bond? 25 PMT, 28 N, - 865.56 PV, 1,000 FV → CPT I/Y = 3.2374 x 2 = 6.4749% 5. Explain why, despite the fact that the yield to call may be higher than the yield to maturity, this is not necessarily good for the investor holding a callable bond. This superior YTC is only earned for a truncated period of time. The investor would rather earn the slightly lower but “guaranteed-for-longer” YTM. payments coupon separating Days payment coupon last since Days 2 Payment Coupon Annual Interest Accrued × = $33.3791 0.7418 $45 182 47- 182 2 $90 Interest Accrued = × = × = In te re s t A c c ru e d B o n d o f P ric e Q u o te d P ric e D irty + = $957.3791 $33.3791$33....
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This note was uploaded on 04/08/2008 for the course FIN 315 taught by Professor during the Spring '08 term at Bryant.

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Chapter 7 & 8 Homework Assignment -- Answers - Chapter...

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