Solutions to Chapter 6Valuing BondsWord文档下载推荐.docx

Solutions to Chapter 6Valuing BondsWord文档下载推荐.docx

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Ascouponrateremainsthesameandthebondpricedecreases,thecurrentyieldincreases.

2.Whenthebondissellingatadiscount,$970inthiscase,theyieldtomaturityisgreaterthan8%.Weknowthatiftheyieldtomaturitywere8%,thebondwouldsellatpar.Atapricebelowpar,theyieldtomaturityexceedsthecouponrate.

Currentyield=couponpayment/bondprice=$80/$970

Therefore,currentyieldisalsogreaterthan8%.

3.Couponpayment=0.08$1,000=$80

Currentyield=$80/bondprice=0.07

Therefore:

bondprice=$80/0.07=$1,142.86

4.Couponrate=$80/$1,000=0.080=8.0%

Currentyield=$80/$950=0.0842=8.42%

Tocomputetheyieldtomaturity,usetrialanderrortosolveforrinthefollowingequation:

r=9.119%

Usingafinancialcalculator,computetheyieldtomaturitybyentering:

n=6;

PV=（）950;

FV=1000;

PMT=80,computei=9.119%

Verifythesolutionasfollows:

（differenceduetorounding）

5.Inorderforthebondtosellatpar,thecouponratemustequaltheyieldtomaturity.SinceCircularbondsyield9.119%,thismustbethecouponrate.

6.a.Currentyield=coupon/price=$80/$1,100=0.0727=7.27%

b.Tocomputetheyieldtomaturity,usetrialanderrortosolveforrinthefollowingequation:

r=6.602%

n=10;

PV=（）1100;

PMT=80,computei=6.602%

7.Whenthebondissellingatfacevalue,itsyieldtomaturityequalsitscouponrate.Thisfirm’sbondsaresellingatayieldtomaturityof9.25%.Sothecouponrateonthenewbondsmustbe9.25%iftheyaretosellatfacevalue.

8.Thebondpaysacouponof7.125%whichmeansannualinterestis$71.25.Thebondissellingfor:

1305/32=$1,301.5625.Therefore,thecurrentyieldis:

$71.25/$1301.5625=5.47%

Thecurrentyieldexceedstheyield-to-maturityonthebondbecausethebondissellingatapremium.Atmaturitytheholderofthebondwillreceiveonlythe$1,000facevalue,reducingthetotalreturnoninvestment.

9.Bond1

Year1:

Year2:

Usingafinancialcalculator:

PMT=80,FV=1000,i=10%,n=10;

computePV0=$877.11

PMT=80,FV=1000,i=10%,n=9;

computePV1=$884.82

Rateofreturn=

Bond2

PMT=120,FV=1000,i=10%,n=10;

computePV0=$1,122.89

PMT=120,FV=1000,i=10%,n=9;

computePV1=$1,115.18

RateofReturn=

Bothbondsprovidethesamerateofreturn.

10.a.Ifyieldtomaturity=8%,pricewillbe$1,000.

b.Rateofreturn=

c.Realreturn=1=

11.a.Withaparvalueof$1,000andacouponrateof8%,thebondholderreceives$80peryear.

b.

c.Iftheyieldtomaturityis6%,thebondwillsellfor:

12.a.Tocomputetheyieldtomaturity,usetrialanderrortosolveforrinthefollowingequation:

r=8.971%

n=30;

PV=（）900;

PMT=80,computei=8.971%

b.Sincethebondissellingforfacevalue,theyieldtomaturity=8.000%

c.Tocomputetheyieldtomaturity,usetrialanderrortosolveforrinthefollowingequation:

r=7.180%

PMT=80,computei=7.180%

13.a.Tocomputetheyieldtomaturity,usetrialanderrortosolveforrinthefollowingequation:

r=4.483%

n=60;

PMT=40,computei=4.483%

Therefore,theannualizedbondequivalentyieldtomaturityis:

4.483%2=8.966%

b.Sincethebondissellingforfacevalue,thesemi-annualyield=4%

4%2=8%

c.Tocomputetheyieldtomaturity,usetrialanderrortosolveforrinthefollowingequation:

r=3.592%

PMT=40,compute