Question

Bond Bond Value Current Yield Bond A Bond B Bond C Discount Rate 5.00% 15.00% 15.60% Roen is planning to invest in five-year, 15% annual coupon bonds with a face value of $1,000 each. Complete the table by calculating the value of each bond and the current yields at the various discount rates. There is a distinct relationship between the coupon rate, the discount rate, and a bond's price relative to its par value. Based on your preceding calculations, complete the following statements: the required yield, and the market • A bond is referred to as a par bond when the coupon rate value the par value. • A bond is referred to as a discount bond when the coupon market value the par value. • A bond is referred to as a premium bond when the coupon rate market value the par value. II AV the required yield, and the the required yield, and the If the market price of the bond is equal to the intrinsic value (the computed value), which bond listed is selling at par? Bond C Bond A O Bond B

Answer 1

1.
A:
Bond Value=PV(5%,5,-15%*1000,-1000)=1432.94767

Current yield=15%*1000/PV(5%,5,-15%*1000,-1000)=10.468%

2.
B:
Bond Value=PV(15%,5,-15%*1000,-1000)=$1,000.000

Current yield=15%*1000/PV(15%,5,-15%*1000,-1000)=15.000%

3.
C:
Bond Value=PV(15.6%,5,-15%*1000,-1000)=$980.170

Current yield=15%*1000/PV(15.6%,5,-15%*1000,-1000)=15.303%

4.
is equal to, =

5.
is equal to

6.
is lower than, <

7.
is lower than

8.
is greater than, >

9.
is greater than

10.
Bond B

11.
The probability of default is zero

12.
YTM:
=RATE(18,9%*1000,-950.35,1000)
=9.59%

YTC:
=RATE(8,9%*1000,-950.35,1000)
=9.93%

13.
18 years

14.
9.59%