Problem 6-20 Interest Rate Risk (LO 2] Bond J has a coupon rate of 5.8 percent. Bond K has a coupon rate of 15.8 percent. Both bonds have eleven years to maturity, a par value of $1,000, and a YTM of 12.6 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b.If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) 1 Bond J Bond K % % a. Percentage change in price b. Percentage change in price % % -nces Problem 6-26 Zero Coupon Bonds [LO 2] Suppose your company needs to raise $41 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 6.1 percent, and you're evaluating two issue alternatives: a 6.1 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 25 percent. a. How many of the coupon bonds would you need to issue to raise the $41 million? How many of the zeroes would you need to issue? (Do not round intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your zero coupon bond answer to 2 decimals, e.g., 32.16.) b.In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeroes? (Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year under the two different scenarios. (Input a cash outflow as a negative value and a cash inflow as a positive value. Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) 41,000 $ a. Number of coupon bonds Number of zero coupon bonds b. Coupon bond repayment Zero coupon bond repayment c. Coupon bond cash flow Zero coupon bond cash flow 300.75 42,250,500 136,236,000 $ Problem 6-28 Bond Yields (LO 2] You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2019 and the bond has a par value of $1.000. Rate Maturity Mo/Yr May 23 Ask Yld Chg ?? Bid Asked 103.4729 103.5457 +3132 104.5069 104.6526 +4401 6.179 5.674 May 28 22 6.208 27 May 38 +5522 ?? 4.211 In the above table, find the Treasury bond that matures in May 2028. What is your yield to maturity if you buy this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Yield to maturity % You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2019 and the bond has a par value of $1,000. Maturity Mo/Y Ask Yld Rate Bid Asked 103.5540 103.5418 Chg + 3093 ?? May 24 6.119 1 5.524 104.5030 104.6487 +4365 May 29 22 6.193 +5483 May 39 ?? ?? 4.151 a. In the above table, find the Treasury bond that matures in May 2039. What is the asked price of this bond in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the bid-ask spread for this bond is 0566, what is the bid price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Asked price b. Bid price