Question

it? take duvantage of this opportunity, you need to invest $14,000 Up front. Assuming you require a 12% annual return for this type of le a 12% annual return for this type of investment, should you do What is the most you should be willing to pay for this inves, X 5000 12. A 15 year bond currently sells at par. It offers semi-annual payme u currently sells at par. It offers semi-annual payments and the payment is $36. What is the yield to maturity of this bond?! (17 13. If the price of a bond that currently sells at par increases, what happens to its coupon rate? 14. If the price of a bond that currently sells at par increases, what happens to its yield to maturity? 15. Complete the following table based on bond characteristics and their expected affect on bond prices: Characteristic Higher Yield Lower Yield Higher rating Call provision Protective covenant Higher Senority Higher Price Non-Inv. Grade vs Inv. Grade Illiquid issue 0% coupon rate that pays coupons semi-anually, and is selling 16. A bond with 20 years to maturity, a 10% coupon rate that pays co for $875 will have a yield to maturity of?

12，13，14 are one question

Answer 1

12. Yield of a bond is the rate of return at which is expected from the bond given the market risk estimates. If the yield is greater than coupon, the bond will sell at a discount to par. When the yield is less than coupon, the bond will sell at premium. And when the yield is same as coupon, the bond will sell at par. So in this case, the bond has a coupon of 7.2% annually. Since it is selling at par, the yield will be same as coupon i.e. 7.2%

13. Coupon rate of a bond is the interest paid on the face value of the bond. It doesn't depend on the price of the bond. so if the yield or price changes, it will remain unaffected.

14. If the price of a bond increases, which means it sells at premium now means the yield of the bond has decreased, and is less than the coupon rate of the bond.