Microhard has issued a bond with the following characteristics: Calculate the price of this bond if the YTM is: a. 7 percent b. 9 percent c. 5 percent Bond Yields Watters Umbrella Corp, issued 15-year bonds 2 years ago at a coupon rate of 5.9 percent. The bonds make semiannual payments. if these bonds currently sell for 105 percent of par value, what is the YTM? Coupon Rates Rhiannon corporation has bonds on the market with 11.5 years to maturity, a YTM of 7.3 percent, and a current price of $1, 080. The bonds make semiannual payments. What must the coupon rate be on these bonds? Valuing Bonds Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. suppose a German company issues a bond with a par value of 1,000, 15 years to maturity, and a coupon rate of 4.5 percent paid annually. If the yield to maturity is 3.9 percent, what is the current price of the bond? Bond Yields A Japanese company has a bond outstanding that sells for 106 percent of its V 100,000 par value. The bond has a coupon rate of 2.8 percent paid annually and matures in 21 years What is the yield to maturity of this bond? Zero Coupon Bonds You find a zero coupon bond with a par value of $10,000 and $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.9 percent, what is the dollar price of the bond? Assume semiannual compounding periods. Valuing Bonds Yan Yan corp, has a $2,000 par value bond outstanding with a coupon rate of 4.9 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 3.8 percent. What is the dollar price of the bond? Valuing Bonds Union Local School District has bonds outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on these bonds is 3.9 percent, and the bonds have a par value of $5,000. What is the dollar price of the bond? Calculating Real Rates of Return If Treasury bills are currently paying 3.9 percent and the inflation rate is 201 percent, what is the approximate real rate of interest? The exact real rate? Inflation and Nominal Returns Suppose the real rate is 2.4 percent and the inflation rate is 3.7 percent. What rate would you expect to see on a Treasury bill? Nominal and Real Returns An investment offers a total return of 13 percent over the coming year. Alan Wingspan thinks the total real return on this investment will be only 8 percent. What does Alan believe the inflation rate return on this investment will be only 8 percent. What does Alan believe the inflation rate will be over the next year? Nominal versus Real Returns Say you own an asset that had a total return last year of 11.6 percent. If the inflation rate last year was 5.3 percent, what was your real return? Using Treasury Quotes Locate the Treasury bond in Figure 8.4 maturing in February 2037. What is its coupon rate? What is its bid price? What was the previous day's asked price? Assume a par value of $10,0000. Using Treasury Quotes Locate the Treasury bond in Figure 8.4 maturing in November 2039. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is its current yield? What is its yield to maturity? What is the bid-ask spread in dollars? Assume a par value of $1,000
