财务管理第七章答案.docx

财务管理第七章答案.docx

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财务管理第七章答案

Chapter7

BondsandTheirValuation

LEARNINGOBJECTIVES

Afterreadingthischapter,studentsshouldbeableto:

∙Listthefourmainclassificationsofbondsanddifferentiateamongthem.

∙Identifythekeycharacteristicscommontoallbonds.

∙Calculatethevalueofabondwithannualorsemiannualinterestpayments.

∙Explainwhythemarketvalueofanoutstandingfixed-ratebondwillfallwheninterestratesriseonnewbondsofequalrisk,orviceversa.

∙Calculatethecurrentyield,theyieldtomaturity,and/ortheyieldtocallonabond.

∙Differentiatebetweeninterestraterisk,reinvestmentraterisk,anddefaultrisk.

∙Listmajortypesofcorporatebondsanddistinguishamongthem.

∙Explaintheimportanceofbondratingsandlistsomeofthecriteriausedtoratebonds.

∙Differentiateamongthefollowingterms:

Insolvent,liquidation,andreorganization.

∙Readandunderstandtheinformationprovidedonthebondmarketpageofyournewspaper.

CHAPTER4

ST-2a.Pennington’sbondsweresoldatpar;therefore,theoriginalYTMequaledthecouponrate

of12percent.

b.

Withafinancialcalculator,inputthefollowing:

N_50,I_5,PMT_60,FV_1000,

andPV_?

SolveforPV_$1,182.56.

c.Currentyield_Annualcouponpayment/Price

_$120/$1,182.56

_0.1015_10.15%.

Capitalgainsyield_Totalyield_Currentyield

_10%_10.15%__0.15%.

d.Withafinancialcalculator,inputthefollowing:

N_13,PV__916.42,PMT_60,FV_

1000,andkd/2_I_?

Calculatorsolution_kd/2_7.00%;therefore,kd_14.00%.

e.Currentyield_$120/$916.42_13.09%.

Capitalgainsyield_14%_13.09%_0.91%.

f.Thefollowingtimelineillustratestheyearstomaturityofthebond:

Thus,onMarch1,2002,therewere132⁄3periodsleftbeforethebondmatured.Bond

tradersactuallyusethefollowingproceduretodeterminethepriceofthebond:

1/1/027/1/021/1/037/1/031/1/0412/31/08

3/1/02

（1）Findthepriceofthebondonthenextcoupondate,July1,2002.Usingafinancialcalculator,

inputN_13,I_7.75,PMT_60,FV_1000,andPV_?

SolveforPV_

$859.76.

（2）Addthecoupon,$60,tothebondpricetogetthetotalvalue,TV,ofthebondonthe

nextinterestpaymentdate:

TV_$859.76_$60.00_$919.76.

（3）Discountthistotalvaluebacktothepurchasedate（March1,2002）:

Usingafinancialcalculator,inputN_4/6,I_7.75,PMT_0,FV_919.76,and

PV_?

SolveforPV_$875.11.

（4）Therefore,youwouldhavewrittenacheckfor$875.11tocompletethetransaction.Of

thisamount,$20_（1⁄3）（$60）wouldrepresentaccruedinterestand$855.11wouldrepresent

thebond’sbasicvalue.Thisbreakdownwouldaffectbothyourtaxesandthose

oftheseller.

（5）Thisproblemcouldbesolvedveryeasilyusingafinancialcalculatorwithabondvaluation

function,suchastheHP-12CortheHP-17B.Thisisexplainedinthecalculator

manualundertheheading,“BondCalculations.”

LECTURESUGGESTIONS

Thischapterservestwopurposes.First,itprovidesimportantandusefulinformationonbondsperse.Second,itprovidesagoodexampleoftheuseoftimevalueconcepts,soitreinforcesthetopicscoveredinChapter6.

Webeginourlecturewithadiscussionofthedifferenttypesofbondsandtheircharacteristics.Thenwemoveontohowbondvaluesareestablished,howyieldsaredetermined,theeffectsofchanginginterestratesonbondprices,andtheriskinessinherentindifferenttypesofbonds.

Thedetailsofwhatwecover,andthewaywecoverit,canbeseenbyscanningBlueprints,Chapter7.Forothersuggestionsaboutthelecture,pleaseseethe“LectureSuggestions”inChapter2,wherewedescribehowweconductourclasses.

DAYSONCHAPTER:

3OF58DAYS（50-minuteperiods）

ANSWERSTOEND-OF-CHAPTERQUESTIONS

7-1Yes,thestatementistrue.

7-2False.Short-termbondpricesarelesssensitivethanlong-termbondpricestointerestratechangesbecausefundsinvestedinshort-termbondscanbereinvestedatthenewinterestratesoonerthanfundstiedupinlong-termbonds.

7-3ThepriceofthebondwillfallanditsYTMwillriseifinterestratesrise.Ifthebondstillhasalongtermtomaturity,itsYTMwillreflectlong-termrates.Ofcourse,thebond’spricewillbelessaffectedbyachangeininterestratesifithasbeenoutstandingalongtimeandmaturesshortly.Whilethisistrue,itshouldbenotedthattheYTMwillincreaseonlyforbuyerswhopurchasethebondafterthechangeininterestratesandnotforbuyerswhopurchasedprevioustothechange.

Ifthebondispurchasedandheldtomaturity,thebondholder’sYTMwillnotchange,regardlessofwhathappenstointerestrates.

7-4Ifinterestratesdeclinesignificantly,thevaluesofcallablebondswillnotrisebyasmuchasthoseofbondswithoutthecallprovision.Itislikelythatthebondswouldbecalledbytheissuerbeforematurity,sothattheissuercantakeadvantageofthenew,lowerrates.

7-5Fromthecorporation’sviewpoint,oneimportantfactorinestablishingasinkingfundisthatitsownbondsgenerallyhaveahigheryieldthandogovernmentbonds;hence,thecompanysavesmoreinterestbyretiringitsownbondsthanitcouldearnbybuyinggovernmentbonds.Thisfactorcausesfirmstofavorthesecondprocedure.Investorsalsowouldprefertheannualretirementprocedureiftheythoughtthatinterestratesweremorelikelytorisethantofall,buttheywouldpreferthegovernmentbondpurchaseprogramiftheythoughtrateswerelikelytofall.Inaddition,bondholdersrecognizethat,underthegovernmentbondpurchasescheme,eachbondholderwouldbeentitledtoagivenamountofcashfromtheliquidationofthesinkingfundifthefirmshouldgointodefault,whereasundertheannualretirementplan,someoftheholderswouldreceiveacashbenefitwhileotherswouldbenefitonlyindirectlyfromthefactthattherewouldbefewerbondsoutstanding.

Onbalance,investorsseemtohavelittlereasonforchoosingonemethodovertheother,whiletheannualretirementmethodisclearlymorebeneficialtothefirm.Theconsequencehasbeenapronouncedtrendtowardannualretirementandawayfromtheaccumulationscheme.

7-6a.Ifabond’spriceincreases,itsYTMdecreases.

b.Ifacompany’sbondsaredowngradedbytheratingagencies,itsYTMincreases.

c.Ifachangeinthebankruptcycodemadeitmoredifficultforbondholderstoreceivepaymentsintheeventafirmdeclaredbankruptcy,thenthebond’sYTMwouldincrease.

d.Iftheeconomyenteredarecession,thenthepossibilityofafirmdefaultingonitsbondwouldincrease;consequently,itsYTMwouldincrease.

e.Ifabondweretobecomesubordinatedtoanotherdebtissue,thenthebond’sYTMwouldincrease.

7-7Asaninvestorwithashortinvestmenthorizon,Iwouldviewthe20-yearTreasurysecurityasbeingmoreriskythanthe1-yearTreasurysecurity.IfIboughtthe20-yearsecurity,Iwouldbearaconsiderableamountofinterestraterisk.Sincemyinvestmenthorizonisonlyoneyear,Iwouldhavetosellthe20-yearsecurityoneyearfromnow,andthepriceIwouldreceiveforitwoulddependonwhathappenedtointerestratesduringthatyear.However,ifIpurchasedthe1-yearsecurityIwouldbeassuredofreceivingmyprincipalattheendofthatoneyear,whichisthe1-yearTreasury’smaturitydate.

SOLUTIONSTOEND-OF-CHAPTERPROBLEMS

7-1Withyourfinancialcalculator,enterthefollowing:

N=10;I=YTM=9%;PMT=0.081,000=80;FV=1000;PV=VB=?

PV=$935.82.

7-2Withyourfinancialcalculator,enterthefollowingtofindYTM:

N=102=20;PV=-1100;PMT=0.08/21,000=40;FV=1000;I=YTM=?

YTM=3.31%2=6.62%.

Withyourfinancialcalculator,enterthefollowingtofindYTC:

N=52=10;PV=-1100;PMT=0.08/21,000=40;FV=1050;I=YTC=?

YTC=3.24%2=6.49%.

7-3Theproblemasksyoutofindthepriceofabond,giventhefollowingfacts:

N=16;I=8.5/2=4.25;PMT=45;FV=1000.

Withafinancialcalculator,solveforPV=$1,028.60.

7-4VB=$985;M=$1,000;Int=0.07$1,000=$70.

a.Currentyield=Annualinterest/Currentpriceofbond

=$70/$985.00

=7.11%.

b.N=10;PV=-985;PMT=70;FV=1000;YTM=?

SolveforI=YTM=7.2157%7.22%.

c.N=7;I=7.2157;PMT=70;FV=1000;PV=?

SolveforVB=PV=$988.46.

7-5a.1.5%:

BondL:

InputN=15,I=5,PMT=100,FV=1000,PV=?

PV=$1,518.98.

BondS:

ChangeN=1,PV=?

PV=$1,047.62.

2.8%:

BondL:

FromBondSinputs,changeN=15andI=8,PV=?

PV=$1,171.19.

BondS:

ChangeN=1,PV=?

PV=$1,018.52.

3.12%:

BondL:

FromBondSinputs,changeN=15andI=12,PV=?

PV=$863.78.

BondS:

ChangeN=1,PV=?

PV=$982.14.

b.Thinkaboutabondthatmaturesinonemonth.Itspresentvalueisinfluencedprimarilybythematurityvalue,whichwillbereceivedinonlyonemonth.Evenifinterestratesdouble,thepriceofthebondwillstillbecloseto$1,000.A1-yearbond’svaluewouldfluctuatemorethantheone-monthbond’svaluebecauseofthedifferenceinthetimingofreceipts.However,itsvaluewouldstillbefairlycloseto$1,000evenifinterestratesdoubled.Along-termbondpayingsemiannualcoupons,ontheotherhand,willbedominatedbydistantreceipts,receiptsthataremultipliedby1/（1+kd/2）t,andifkdincreases,thesemultiplierswilldecreasesignificantly.Anotherwaytoviewthisproblemisfromanopportunitypointofview.A1-monthbondcanbereinvestedatthenewrateveryquickly,andhencetheopportunitytoinvestatthisnewrateisnotlost;however,thelong-termbondlocksinsubnormalreturnsforalongperiodoftime.

7-6a.VB=

M=$1,000.I=0.09（$1,000）=$90.

1.VB=$829:

InputN=4,PV=-82