Posted: October 1st, 2021
Problem 5.1 bond valuation with annual payments
Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate in 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?
5.4 determinant of interest rates
The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3 year Treasury securities?
5.9 bond valuation and interest rare risk
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. – What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on bond S. – Why does the longer-term (15 year) bond fluctuate more when interest rates change than does the short term bond (1 year)?
5.13 yield to maturity and current yield
You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
BA/350 BA 350 BA350 Week 6 Problem Solution (***** 100% Correct ******)
Question 5.1 All Definition (A to N )
Question 5-1 Define each of the following term:
A. Bond; Treasury bond; corporate bond; municipal bond; foreign bond.
B. Par value; maturity date; coupon payment; coupon interest rate.
C. Floating-rate bond; zero coupon bond; original issue discount bond (oid).
D. Call provision; redeemable bond; sinking fund.
E. Convertible bond; warrant; income bond; indexed, or purchasing power, bond.
F. premium bond; discount bond.
G. current yield (on a bond); yield to maturity (YTM); yield to call (YTC).
H. indentures; mortgage bond; debenture; subordinated debenture.
I. development bond; municipal bond insurance; junk bond; investment-grade bond.
J. real risk-free rate of interest, r*; nominal risk-free rate of interest, rRF
K. inflation premium (IP); default risk premium (DRP); liquidity; liquidity premium (LP)
L. interest rate risk; maturity risk premium (MRP); reinvestment rate risk.
M. term structure of interest rates; yield curve.
N. “normal” yield curve; inverted (“abnormal”) yield curve.
BA350 Week 6 Question 5.1
BA350 BA/350 BA 350 Week 6 Problem (***** 100% Correct ******)
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