par value yield-to-maturity maturity costs higher inversely debt coupon lower long-term debt Match the words above with the numbers: Corporate bonds are a form of capital that are accounted for as 2 under non-current liabilities. The typical US corporate bond has a $1,000 3 and comes with semi-annual interest payments that are also called payments. The 5 on a bond communicates the annual return on investment if the bond is purchased at the current price and held to 6. Bond prices are related to bond yields. That means when greater demand leads to bond prices, bond yields fall. Or lower prices mean bond yields are rising. coupon rate = 1. GE has a series of bonds with a $70 coupon. They mature in exactly two years and have a conventional par value of $1,000. Comparable bonds (with respect to risk and time frame) are currently trading with a yield to maturity of 3.0%. (So if an investor didn't buy these GE bonds, she could get a 3.0% ytm from an appropriate alternative investment.) income every six months if you own 100 bonds - N = I/YR = PV = price = (a) What is the coupon rate for these bonds? (b) If you own 100 of these bonds, how much will you receive every months? (c) What is an appropriate price for this GE bond right now? PMT = FV = N= 2. How does the price of that GE bond above change if it matures in exactly 10 years instead of only two? I/YR = PV = price = PMT = FV = 3. Why such a difference between the two-year price and the 10-year price? Na 4. A typical US corporate bond has a coupon of $40, a yield- to-maturity of 6.0%, and a maturity of 12 years. What is the price of this bond? I/YR = PV = price = PMT = FV = N = 5. As an investor, you are studying a bond with a $50 coupon that matures in 15 years. You know from experience that your opportunity cost of money is always about 7.5%. What is the most you would pay for this bond? I/YR = PV = price = PMT = FV = 6. You see a bond that matures in seven years and has a yield-to-maturity of 4.5%. What does that 4.5% actually mean in practical, investor terms? 7. A Boeing bond has a coupon of 4.5%. The current yield- to-maturity is 5.12%. You don't need to do any calculations while you answer this: Is the bond trading at a discount or at a premium? Explain how you know this and why it makes sense. Bond A Bond B N = 8. Bond A and Bond B look a lot alike. They both mature in five years and have yield-to-maturities of 6.4%. Bond A has a coupon rate of 5.0%, however, while Bond B has a coupon rate of 8.0%. What are the current prices of these two bonds? I/YR = PV = PMT = FV = Bond A Bond B 9. Say that returns on comparable alternative investments - maybe returns on things like other, similar bonds - go up to about 7.0%. Those rising returns will probably make these bonds look a little less attractive. What will happen to Bond A and Bond B prices? N = I/YR = PV = PMT = FV = par value yield-to-maturity maturity costs higher inversely debt coupon lower long-term debt Match the words above with the numbers: Corporate bonds are a form of capital that are accounted for as 2 under non-current liabilities. The typical US corporate bond has a $1,000 3 and comes with semi-annual interest payments that are also called payments. The 5 on a bond communicates the annual return on investment if the bond is purchased at the current price and held to 6. Bond prices are related to bond yields. That means when greater demand leads to bond prices, bond yields fall. Or lower prices mean bond yields are rising. coupon rate = 1. GE has a series of bonds with a $70 coupon. They mature in exactly two years and have a conventional par value of $1,000. Comparable bonds (with respect to risk and time frame) are currently trading with a yield to maturity of 3.0%. (So if an investor didn't buy these GE bonds, she could get a 3.0% ytm from an appropriate alternative investment.) income every six months if you own 100 bonds - N = I/YR = PV = price = (a) What is the coupon rate for these bonds? (b) If you own 100 of these bonds, how much will you receive every months? (c) What is an appropriate price for this GE bond right now? PMT = FV = N= 2. How does the price of that GE bond above change if it matures in exactly 10 years instead of only two? I/YR = PV = price = PMT = FV = 3. Why such a difference between the two-year price and the 10-year price? Na 4. A typical US corporate bond has a coupon of $40, a yield- to-maturity of 6.0%, and a maturity of 12 years. What is the price of this bond? I/YR = PV = price = PMT = FV = N = 5. As an investor, you are studying a bond with a $50 coupon that matures in 15 years. You know from experience that your opportunity cost of money is always about 7.5%. What is the most you would pay for this bond? I/YR = PV = price = PMT = FV = 6. You see a bond that matures in seven years and has a yield-to-maturity of 4.5%. What does that 4.5% actually mean in practical, investor terms? 7. A Boeing bond has a coupon of 4.5%. The current yield- to-maturity is 5.12%. You don't need to do any calculations while you answer this: Is the bond trading at a discount or at a premium? Explain how you know this and why it makes sense. Bond A Bond B N = 8. Bond A and Bond B look a lot alike. They both mature in five years and have yield-to-maturities of 6.4%. Bond A has a coupon rate of 5.0%, however, while Bond B has a coupon rate of 8.0%. What are the current prices of these two bonds? I/YR = PV = PMT = FV = Bond A Bond B 9. Say that returns on comparable alternative investments - maybe returns on things like other, similar bonds - go up to about 7.0%. Those rising returns will probably make these bonds look a little less attractive. What will happen to Bond A and Bond B prices? N = I/YR = PV = PMT = FV =
