kim226

Consider a 5-year, semiannual, 10% coupon bond with a maturity value of 1,000 selling for $1,081.11. The first call date is 3 years from now and the call price is $1,030. What is the yield-to-call?

A) 7.28%.

B) 3.91%.

C) 7.82%.

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N = 6; PMT = 50; FV = 1,030; PV = $1,081.11; CPT → I = 3.91054
3.91054 × 2 = 7.82

kim226

A bond is selling at a discount relative to its par value. Which of the following relationships holds?

A) yield to maturity < coupon rate < current yield.

B) coupon rate < current yield < yield to maturity.

C) current yield < coupon rate < yield to maturity.

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When a bond is selling at a discount, it means that the bond has a larger YTM (discount rate that will equate the PV of the bond's cash flows to its current price) than its current yield (coupon payment/current market bond price) and coupon payment.

kim226

Which of the following describes the yield to worst? The:

A) yield given default on the bond.

B) lowest of all possible prices on the bond.

C) lowest of all possible yields to call and yields to put.

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Yield to worst involves the calculation of yield to call and yield to put for every possible call or put date, and determining which of these results in the lowest expected return.

kim226

A $1,000 bond with an annual coupon rate of 10% has 10 years to maturity and is currently priced at $800. What is the bond's approximate yield-to-maturity?

A) 12.6%.

B) 11.7%.

C) 13.8%.

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FV = 1,000, PMT = 100, N = 10, PV = -800
Compute I = 13.8

kim226

What is the yield to call on a bond that has an 8% coupon paid annually, $1,000 face value, 10 years to maturity and is first callable in 6 years? The current market price is $1,100. The call price is the face value plus 1-year’s interest.

A) 7.14%.

B) 7.02%.

C) 6.00%.

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N = 6; PV = -1,100.00; PMT = 80; FV = 1,080; Compute I/Y = 7.02%.

kim226

Tony Ly is a Treasury Manager with Deeter Holdings, a large consumer products holding company. The Assistant Treasurer has asked Ly to calculate the current yield (CY) and the Yield-to-first Call (YTC) on a bond the company holds that has the following characteristics:

• 7 years to maturity
• $1,000 face value
• 7.0% semi-annual coupon
• Priced to yield 9.0%
• Callable at $1,060 in two years

If Ly calculates correctly, the CY and YTC are approximately:

CY

YTC

A) 7.80%    15.82%

B) 7.80%    15.72%

C) 7.78%    15.82%

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To calculate the CY and YTC, we first need to calculate the present value of the bond: FV = 1,000, N = 14 = 7 × 2, PMT = 35 =(1000 × 0.07)/2, I/Y = 4.5 (9 / 2), Compute PV = -897.77 (negative sign because we entered the FV and payment as positive numbers).
Then, CY = (Face value × Coupon) / PV of bond = (1,000 × 0.07) / 897.77 = 7.80%.
And finally, YTC  calculation: FV = 1,060 (price at first call), N = 4 (2 × 2), PMT = 35 (same as above), PV = -897.77 (negative sign because we entered the FV and payment as positive numbers), ComputeI/Y = 7.91 (semi-annual rate, need to multiply by 2) = 15.82%.

kim226

In capital markets, stock dividends and bond coupons generally provide what is referred to as:

A) internal yield.

B) current yield.

C) capital gain yield.

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Current yield is based on actual cash received during the investment horizon and is typically composed of dividends and interest.

kim226

Find the yield to maturity of a 6% coupon bond, priced at $1,115.00. The bond has 10 years to maturity and pays semi-annual coupon payments.

A) 8.07%.

B) 4.56%.

C) 5.87%.

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N = 10 × 2 = 20; PV = -1,115.00; PMT = 60/2 = 30; FV = 1,000.
Compute I = 2.28 (semiannual) × 2 = 4.56%

kim226

A 20 year, 8% semi-annual coupon, $1,000 par value bond is selling for $1,100. The bond is callable in 4 years at $1,080. What is the bond's yield to call?

A) 8.13.

B) 6.87.

C) 7.21.

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n = 4(2) = 8; PMT = 80/2 = 40; PV = -1,100; FV = 1,080
Compute YTC = 3.435(2) = 6.87%

kim226

What is the current yield for a 5% three-year bond whose price is $93.19?

A) 5.00%.

B) 2.68%.

C) 5.37%.

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The current yield is computed as follows:
Current yield = 5% x 100 / $93.19 = 5.37%