Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Attached are questions from Business Finance that I could use some assistance with. 1. A 30-year Treasury bond is issued with face value of $1,000,

Attached are questions from Business Finance that I could use some assistance with.

image text in transcribed 1. A 30-year Treasury bond is issued with face value of $1,000, paying interest of $42 per year. If market yields increase shortly after the T-bond is issued, what is the bond's coupon rate? (Enter your answer as a percent rounded to 1 decimal place.) % Coupon rate 2. A General Power bond with a face value of $1,000 carries a coupon rate of 8.4%, has 9 years until maturity, and sells at a yield to maturity of 7.4%. (Assume annual interest payments.) a. What interest payments do bondholders receive each year? $ Interest payments b. At what price does the bond sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.) $ Price c. What will happen to the bond price if the yield to maturity falls to 6.4%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price will (Click to select) $ by 3. One bond has a coupon rate of 6.8%, another a coupon rate of 8.4%. Both bonds pay interest annually, have 8year maturities, and sell at a yield to maturity of 7.0%. a. If their yields to maturity next year are still 7.0%, what is the rate of return on each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Rate of return Bond 1 Bond 2 % % b. Does the higher-coupon bond give a higher rate of return? Yes No 4. General Matter's outstanding bond issue has a coupon rate of 11%, and it sells at a yield to maturity of 8.95%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value? (Round your answer to 2 decimal places.) % Coupon rate 5. Consider three bonds with 6.8% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years. a. What will be the price of each bond if their yields increase to 7.8%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Bond price 4 Years $ 8 Years $ 30 Years $ b. What will be the price of each bond if their yields decrease to 5.8%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Bond price 4 Years $ 8 Years $ 30 Years $ c. Are long-term bonds more or less affected than short-term bonds by a rise in interest rates? More affected Less affected d. Would you expect long-term bonds to be more or less affected by a fall in interest rates? More affected Less affected 6. The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity. Calculate the interest rate offered by each of these strips. Years to Maturity 1 2 3 4 Price, % 97.152% 93.651 89.844 85.780 a. What is the 1-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Interest rate % b. What is the 4-year rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Interest rate % c. Is the yield curve upward-sloping, downward-sloping, or flat? Upward-sloping Downward-sloping Flat d. Is this the usual shape of the yield curve? Yes No 7. a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 5.4%. Now, with 5 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 12%. What is the price of the bond now? (Assume semiannual coupon payments.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Bond price $ b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 86% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Yield to maturity %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Probability And Statistics For Engineering And The Sciences

Authors: Jay L. Devore

9th Edition

1305251806, 978-1305251809

Students also viewed these Finance questions