Question
A 3% semi-annual coupon U.S. Treasury bond (FV is $1000) with 15 years to maturity is priced at $970.00. (a) What is the yield to
A 3% semi-annual coupon U.S. Treasury bond (FV is $1000) with 15 years to maturity is priced at $970.00.
(a) What is the yield to maturity for the Treasury bond? (express answer a percentage to 2 decimal places) ___?___
Now assume that Kits Industries, an AA rated firm is trying to issue 15 year bonds to finance a $12 million project. These bonds are to pay 5% semi-annual coupons and have a face value of $1000. AA rated bonds of similar maturity have a credit spread of 1.90% over treasuries.
(b) At what price do you estimate Kits Industries to be able to issue these bonds for? (calculate your answer as a percentage to 2 decimal places) ___?____
(c) How many bonds does Kits need to issue to reach its financing goal? (round to the nearest whole number) ____?____
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started