Scribd
Upload
337 views3 pages

Bond Valuation Problems

This document provides 14 problems related to bond valuation. The problems cover a range of topics including calculating bond prices given yields, yields given prices, and the effects of interest rate changes on bond prices over time. Several questions involve bonds with features such as call provisions or zero coupon structures.

Uploaded by

Vignesh Kivicky
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
337 views3 pages

Bond Valuation Problems

This document provides 14 problems related to bond valuation. The problems cover a range of topics including calculating bond prices given yields, yields given prices, and the effects of interest rate changes on bond prices over time. Several questions involve bonds with features such as call provisions or zero coupon structures.

Uploaded by

Vignesh Kivicky
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

CF-1 - BOND VALUATION – Problems

1. Tata Motors’ bonds have 10 years remaining to maturity. Interest is paid annually, the
bonds have a $1,000 par value, and the coupon interest rate is 8 percent. The bonds
have a yield to maturity of 9 percent. What is the current market price of these bonds?

2. NLC bonds have 12 years remaining to maturity. Interest is paid annually, the bonds
have a $1,000 par value, and the coupon interest rate is 10 percent. The bonds sell at a
price of $850. What is their yield to maturity?

3. ECIL’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8
percent coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds
are callable in 5 years at a call price of $1,050. What is the yield to maturity? What is
the yield to call?

4. Kraft Foods’ bonds have 7 years remaining to maturity. The bonds have a face value of
$1,000 and a yield to maturity of 8 percent. They pay interest annually and have a 9
percent coupon rate. What is their current yield?

5. Microsoft Corporation has issued bonds that have a 9 percent coupon rate, payable
semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to
maturity of 8.5 percent. What is the price of the bonds?

6. The Garage Company has two bond issues outstanding. Both bonds pay $100 annual
interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S a
maturity of 1 year.

a) What will be the value of each of these bonds when the going rate of interest is
(1) 5 percent, (2) 8 percent and (3) 12 percent? Assume that there is only one
more interest payment to be made on Bond S.
b) Why does the longer-term (15-year) bond fluctuate more when interest rates
change than does the shorter-term bond (1-year)?

7. The Feynman Company’s bonds have 4 years remaining to maturity. Interest is paid
annually; the bonds have a $1,000 par value; and the coupon interest rate is 9 percent.

a) What is the yield to maturity at a current market price of (1) $829 and (2) $1,104?
b) Would you pay $829 for one of these bonds if you thought that the appropriate rate
of interest was 12 percent that is, if rd =12%? Explain your answer.

8. Six years ago, The Singtel Company sold a 20-year bond issue with a 14 percent annual
coupon rate and a 9 percent call premium. Today, Singtel called the bonds. The bonds
originally were sold at their face value of $1,000. Compute the realized rate of return
for investors who purchased the bonds when they were issued and who surrender them
today in exchange for the call price.
Page 1 of 3
9. A 10-year, 12 percent semiannual coupon bond, with a par value of $1,000, may be called
in 4 years at a call price of $1,060. 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?

10. You just purchased a bond which matures in 5 years. The bond has a face value of
$1,000, and has an 8 percent annual coupon. The bond has a current yield of 8.21
percent. What is bond’s yield?

11. Lloyd Corporation’s 14 percent coupon rate, semiannual payment, $1,000 par value
bonds, which mature in 30 years, are callable 5 years from now at a price of $1,050. The
bonds sell at a price of $1,353.54, and the yield curve is flat. Assuming that interest rates
in the economy are expected to remain at their current level, what is the best estimate
of Lloyd’s nominal interest rate of new bonds?

12. Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a $1,000
par value, a 10 percent coupon rate, and semiannual interest payments.

a) Two years after the bonds were issued, the going rate of interest on bonds such as
these fell to 6 percent. At what price would the bonds sell?
b) Suppose that, 2 years after the initial offering, the going interest rate had risen to 12
percent. At what price would the bonds sell?
c) Suppose that the conditions in part (a) existed that is, interest rates fell to 6 percent
2 years after the issue date. Suppose further that the interest rate remained at 6
percent for the next 8 years. What would happen to the price of the Ford Motor
Company bonds over time?

13. A bond trader purchased each of the following bonds at a yield to maturity of 8 percent.
Immediately after she purchased the bonds, interest rate fell to 7 percent. What is the
percentage change in the price of each bond after the decline in interest rates? Fill in
the following table:

Price @ 8% Price @ 7% Percentage Change


10-year, 10% annual coupon _____________ _____________ ______________________

10-year zero _____________ _____________ ______________________

5-year zero _____________ _____________ ______________________

30-year zero _____________ _____________ ______________________

Page 2 of 3
$100 perpetuity _____________ _____________ ______________________

14. An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face
value of $1,000. And has a yield to maturity equal to 9.6 percent. One bond, Bond C, pays
an annual coupon of 10 percent, the other bond, Bond Z, is a zero coupon bond.

a) Assuming that the yield to maturity of each bond remains at 9.6 percent over the
next 4 years, what will be the price of each of the bonds at the following time periods?
Fill in the following table:

t Price of Bond C Price of Bond Z

0 __________________ __________________

1 __________________ __________________

2 __________________ __________________

3 __________________ __________________

4 __________________ ___________________

b) Plot the time path of the prices for each of the two bonds.

Page 3 of 3

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy