Exercise1: Mullineaux Co

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Presentation transcript:

Exercise1: Mullineaux Co Exercise1: Mullineaux Co. issued 11-year bonds one year ago at a coupon rate of 8.6 percent. The bonds make semiannual payments. If the YTM on these bonds is 7.5 percent, what is the current bond price? Exercise2: Corp. issued 12-year bonds 2 years ago at a coupon rate of 7.8 percent. The bonds make semiannual payments. If these bonds currently sell for 108 percent of par value, what is the YTM?

Exercise 3: Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate on the bond now? The YTM? Exercise 4: Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?

Exercise5: Mullineaux Co, issued 11-year bonds one year ago at a coupon rate of 7.50 percent. The bonds make semiannual payments. If the YTM on these bonds is 8.6 percent, What is the current bond price? Exercise6: Joe Kernan Corporation has bonds on the market with 10.5 years to maturity, a YTM of 8.5 percent, and a current price of $1,090. The bonds make semiannual payments. What must the coupon rate be on Kernan’s bonds?

Exercise 7: Bond X is a premium bond making annual payments Exercise 7: Bond X is a premium bond making annual payments. The bond pays a 9 percent coupon, has a YTM of 7 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 5 percent coupon, has a YTM of 7 percent, and also has 13 years to maturity. What are the prices of these bonds today? If interest rates remain unchanged, what do you expect the prices of these bonds to be in one year? In Three years? In eight years? In 12 years? In 13 years? What’s going on here?