Chapter 5. Ch 05 P24 Build a Model

Question # 00001829 Posted By: neil2103 Updated on: 10/02/2013 01:56 AM Due on: 10/23/2013
Subject Accounting Topic Accounting Tutorials:
Question
A 20-year, 8% semiannual coupon bond with a par value of \$1,000 may be called in 5 years at a call price of \$1,040. The bond sells for \$1,100. (Assume that the bond has just been issued.)

a. What is the bond’s yield to maturity?
b. What is the bond’s current yield?
c. What is the bond’s capital gain or loss yield?
d. What is the bond’s yield to call?
NOW ANSWER THE FOLLOWING NEW QUESTIONS:
e. How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)

f. Now assume the date is 10/25/2010. Assume further that a 12%, 10-year bond was issued on 7/1/2010, pays interest semiannually (January 1 and July 1), and sells for \$1,100. Use your spreadsheet to find the bond’s yield.

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1. Solution: Ch 05 P24 Build a Model

Tutorial # 00001675 Posted By: neil2103 Posted on: 10/02/2013 01:57 AM
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2. Solution: Ch 05 P24 Build a Model and Chapter 4- P35 Build a Model

Tutorial # 00169125 Posted By: neil2103 Posted on: 01/17/2016 05:35 PM
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