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Company ABC (ABC) priced a 3.9% coupon bond maturing on January 22, 2030. The bond was issued with a yield to maturity of 3.936%,
Company ABC ("ABC") priced a 3.9% coupon bond maturing on January 22, 2030. The bond was issued with a yield to maturity of 3.936%, with first settlement on January 22, 2020. The yield of the new bond was calculated based on a credit spread of +230 bps over the interpolation of the CAN 2.25% June 1, 2029 and CAN 5.75% June 1, 2033 bonds. All bonds use the actual/365 day count and are semi-annual pay. a) (5 marks) What was the price of ABC's bond at the time of issuance to 3 decimal places? Solve for price by calculating the present value of cash flows associated with the bond using a table. Show all work b) (10 marks) The CAN 2.25% June 1, 2029 bond had a price of 107.13 with a yield of 1.459% when ABC priced their new bond. What was the yield of the CAN 5.75% June 1, 2033 when ABC priced their new bond? Show all work c) (10 marks) What was the clean price of the CAN 5.75% June 1, 2033 (3 decimal places) when ABC priced their new bond? Solve for price by calculating the present value of cash flows associated with the bond using a table. Show all work
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