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Homework answers / question archive / Question 16 4 / 4 pts Your client is consulting with you on a corporate bond that has a 5% annual coupon rate, a $1,000 face value, and matures in three years
Question 16
4 / 4 pts
Your client is consulting with you on a corporate bond that has a 5% annual coupon rate, a $1,000 face value, and matures in three years. You feel that the bond can be sold at the end of the third year for $975. If the bond’s required rate of return is 3%, calculate its fair present value.
Your Answer:
4 / 4 pts
The January 1, 2005, yield on a Treasury STRIP maturing in 8 years is 5.488%. If the face value is $1,000, what should be the quoted cost of the STRIP today, assuming annual compounding?
Your Answer:
4 / 4 pts
Johnson Motor's bonds have ten years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon rate is 8 percent. The bonds have a YTM of 9 percent. What is the current market price of these bonds?
Your Answer:
4 / 4 pts
Suppose you purchase a T-bill that is 125 days from maturity for $9,765. It has a face value of $10,000. Calculate the T-bill’s quoted discount yield.
Your Answer:
4 / 4 pts
Suppose you purchase a T-bill that is 125 days from maturity for $9,765. It has a face value of $10,000. Calculate the T-bill’s bond equivalent yield.
Your Answer:
2 / 4 pts
You recently purchased a $10,000 par T-note that matures in 5 years. The coupon rate is 6%. The last coupon payment was 120 days ago and the instrument has six months in its coupon period. Calculate the accrued interest (in dollars) for the note assuming 30 days in each period.
Your Answer:
4 / 4 pts
A 4-year annual payment 5% coupon T-bond has an expected rate of return of 4.36%, with a par value of $1,000. You will be able to sell the bond at the end of the fourth year for its par value. What is the instrument’s current market price?
Your Answer:
4 / 4 pts
You’re looking to purchase a Wal-Mart bond that has an annual coupon rate of 6½%, but your marginal tax rate is 28%. Calculate the after-tax return to you on the bond.
Your Answer:
4 / 4 pts
What is the duration of a two-year bond that pays an annual coupon of 10% and has a current yield to maturity of 12%? Use $1,000 as the face value.
Your Answer:
0 / 4 pts
If Citibank enters a repurchase agreement in which it agrees to buy T-bonds from a correspondent bank for $24,950,000, with a promise to buy them back for $25,000,000, what is the yield on the instrument if it has a 7-day maturity?
Your Answer:
2 / 4 pts
A corporate bond you purchased some time ago had a 5% annual coupon rate, with four years until maturity, and a $1,000 face value. You sold the bond at the end of the fourth year for $950. Your realized rate of return on the instrument was 10%. What is the current market price of the bond?
Your Answer:
4 / 4 pts
You can purchase commercial paper of a major American corporation for $4,950,000. The paper has a face value of $5,000,000 and is 45 days from maturity. Calculate the discount yield on the instrument.
Your Answer:
4 / 4 pts
You can purchase commercial paper of a major American corporation for $4,950,000. The paper has a face value of $5,000,000 and is 45 days from maturity. Calculate the bond equivalent yield on the instrument.
Your Answer:
4 / 4 pts
OMG, Inc., has a convertible bond issue in which each bond, while having a par value of $1,000, can be converted into shares of the firm’s common stock at a rate of 72.2094 shares of stock per $1,000 face value bond (the conversion rate). OMG’s common stock is trading at $25.00 per share and the bonds are trading at $1,205.00. What is the conversion value of each bond?
Your Answer:
4 / 4 pts
If a $10,000 par T-bill has a 4.5% discount quote and a 180-day maturity, what is the market price of the instrument?
Your Answer:
4 / 4 pts
If the same $10,000 par T-bill has a bond equivalent yield of 5% and the same 180-day maturity, what is its market price?
Your Answer:
Question 16
4 / 4 pts
Your client is consulting with you on a corporate bond that has a 5% annual coupon rate, a $1,000 face value, and matures in three years. You feel that the bond can be sold at the end of the third year for $975. If the bond’s required rate of return is 3%, calculate its fair present value.
Your Answer:
N=3 I=0.03 Pmt=50. FV=975
50/(1+.03)^1+50/(1+.03)^2+50+975/(1+.03)^3
48.54+47.13+938.02=1,033.69
4 / 4 pts
The January 1, 2005, yield on a Treasury STRIP maturing in 8 years is 5.488%. If the face value is $1,000, what should be the quoted cost of the STRIP today, assuming annual compounding?
Your Answer:
Face Value = $1,000
n = 8 years
r = annual yeild rate = 5.488%
Cost of Strip today = Face Value / (1+r)^n
= $1,000 / (1+5.488%)^8
= $1,000 / 1.53329058
= $652.192098
4 / 4 pts
Johnson Motor's bonds have ten years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon rate is 8 percent. The bonds have a YTM of 9 percent. What is the current market price of these bonds?
Your Answer:
Fair value of bond=PVIFA9.10xINT+PVIF9.10xM
6.4177x(1,000x8%)x0.422x1,000
513.416+422=935.416
Fair price value of company J's bond is $935.416
4 / 4 pts
Suppose you purchase a T-bill that is 125 days from maturity for $9,765. It has a face value of $10,000. Calculate the T-bill’s quoted discount yield.
Your Answer:
Discount yield=Pf-P0/Pfx360/n
Discount yield=$1,000-$9,765/$10,000x360/125
$235/$10,000x2.88
6.768%
the T-bill's qDuoted discount yield is 6.78%
4 / 4 pts
Suppose you purchase a T-bill that is 125 days from maturity for $9,765. It has a face value of $10,000. Calculate the T-bill’s bond equivalent yield.
Your Answer:
Discount yield=$10,000-$9,765/$9,75x365/125
$235/$9,765x2.92
=7.027%
T-bill's bond equivalent yield is 7.027%
2 / 4 pts
You recently purchased a $10,000 par T-note that matures in 5 years. The coupon rate is 6%. The last coupon payment was 120 days ago and the instrument has six months in its coupon period. Calculate the accrued interest (in dollars) for the note assuming 30 days in each period.
Your Answer:
Accrued interest on note for 180 days is =(10000*6%*(180/360)
accrued interest on note for 180 days is =$300
4 / 4 pts
A 4-year annual payment 5% coupon T-bond has an expected rate of return of 4.36%, with a par value of $1,000. You will be able to sell the bond at the end of the fourth year for its par value. What is the instrument’s current market price?
Your Answer:
life of bond= 4 yrs
coupon rate=5%
face value=$1,000
annaual coupon amount =$1,000x5%=$50
resale value=$1,000
expected rate of return=4.36%
current market price= oresent value of coupon amount + present value of resale price
=coupon MOUNT X PVIFA (4.36%, 4 YRS) + reslae price x PVIF (4.36%yrs)
=$50x3.99+$1,000x0.843
=$1,023
PVIFA=PRESENT VALUE INTEREST FACTOR OF ANNUNITY
4 / 4 pts
You’re looking to purchase a Wal-Mart bond that has an annual coupon rate of 6½%, but your marginal tax rate is 28%. Calculate the after-tax return to you on the bond.
Your Answer:
After tax return=annual coupon rate(1-tax rate)
After tax return=0.065(1-0.28)
After tax return=4.68%
4 / 4 pts
What is the duration of a two-year bond that pays an annual coupon of 10% and has a current yield to maturity of 12%? Use $1,000 as the face value.
Your Answer:
compute the duration of the coupon bond in the following manner.
Duration 1+y/y-(1+y)+n(c-y)/c[(1+y)n-1]+y
=1+12%/12%-(1+12%)+2x(10%-12%)/10%x{(1+12%)2-1]+12%
=9.333-1.16/10%[(1+12%)2-1]+12%
=1.9076 years
the duration of bond ia 1.9076 years
0 / 4 pts
If Citibank enters a repurchase agreement in which it agrees to buy T-bonds from a correspondent bank for $24,950,000, with a promise to buy them back for $25,000,000, what is the yield on the instrument if it has a 7-day maturity?
Your Answer:
2 / 4 pts
A corporate bond you purchased some time ago had a 5% annual coupon rate, with four years until maturity, and a $1,000 face value. You sold the bond at the end of the fourth year for $950. Your realized rate of return on the instrument was 10%. What is the current market price of the bond?
Your Answer:
PV=[50/(1+.10)^1+[50/(1+.10)^2+[50/(1+.10)^3+[50+950/(1+.10)^4
=(50/1.10)+(50/1.21)+(50/1.33)+(50+950/1.46)
=45.45+41.32+37.59+684.93
=809.29
4 / 4 pts
You can purchase commercial paper of a major American corporation for $4,950,000. The paper has a face value of $5,000,000 and is 45 days from maturity. Calculate the discount yield on the instrument.
Your Answer:
Discount yield
D=F-P/F*360/n
D=(500000-495000)/500000x(360/45)=0.08 i.e 8%
4 / 4 pts
You can purchase commercial paper of a major American corporation for $4,950,000. The paper has a face value of $5,000,000 and is 45 days from maturity. Calculate the bond equivalent yield on the instrument.
Your Answer:
Bond yield
B=F-P/P*365/n
B=(500000-495000)/x(365/45)=8.19%
4 / 4 pts
OMG, Inc., has a convertible bond issue in which each bond, while having a par value of $1,000, can be converted into shares of the firm’s common stock at a rate of 72.2094 shares of stock per $1,000 face value bond (the conversion rate). OMG’s common stock is trading at $25.00 per share and the bonds are trading at $1,205.00. What is the conversion value of each bond?
Your Answer:
conversion ratioxshareprice
72.2094x25=1805.24
4 / 4 pts
If a $10,000 par T-bill has a 4.5% discount quote and a 180-day maturity, what is the market price of the instrument?
Your Answer:
Given about a T-bill,
Face value F = $10000
discount yield = 4.5%
days to maturity d = 180
discount yield = (F-P)*360/(F*d)
=> 0.045 = (10000 - P)*360/(10000*180)
81000 = (10000 - P)*360
=> P = $9775.00
market price of the T-bill is $9775.00
4 / 4 pts
If the same $10,000 par T-bill has a bond equivalent yield of 5% and the same 180-day maturity, what is its market price?
Your Answer:
Given about a T-bill,
Face value F = $10000
bond equivalent yield = 5%
days to maturity d = 180
bond equivalent yield = (F-P)*365/(P*d)
=> 0.05 = (10000 - P)*365/(P*180)
=> 9P = 3650000 - 365P
=> P = 3650000/374 = $9759.36
market price of the T-bill is $9759.36