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07 Task Performance 1

This document contains a bond valuation problem with 5 items. Items 1-3 require calculating bond prices, yields, and returns given interest rate changes for bonds issued in 1992 maturing in 2021. Items 4-5 require calculating sinking fund payments to retire a bond issue over 10 years through calling bonds at par or purchasing on the open market. The grading rubric awards up to 5 points for a fully correct solution and partial points for partially correct solutions.

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beverlybandojo
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301 views1 page

07 Task Performance 1

This document contains a bond valuation problem with 5 items. Items 1-3 require calculating bond prices, yields, and returns given interest rate changes for bonds issued in 1992 maturing in 2021. Items 4-5 require calculating sinking fund payments to retire a bond issue over 10 years through calling bonds at par or purchasing on the open market. The grading rubric awards up to 5 points for a fully correct solution and partial points for partially correct solutions.

Uploaded by

beverlybandojo
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
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BM1904

NAME: DATE: SCORE: ____________

Bonds (25 points: 5 items x 5 points)


Read and analyze the given scenarios and provide what is asked. Show your complete solutions.

Bond Valuation

For items 1-3: The Peninsula Corporation issued a new series of bonds on January 1, 1992. The bonds were
sold at par (P1,000), had a 12% coupon, and mature in 30 years, on December 31, 2021. Coupon payments
are made semiannually (on June 30 and December 31).
1. What was the YTM on January 1, 1992?
2. What was the price of the bonds on January 1, 1997, five (5) years later, if interest rates had fallen to 10%?
3. Find the current yield, capital gains yield, and total return on January 1, 1997, given the price as determined
in part 2.

For items 4-5: The Valencia Development Company (VDC) is planning to sell a P100,000,000, 10-year, 12%,
semiannual payment bond issue. Provisions for a sinking fund to retire the issue over its life will be included in
the indenture. Sinking fund payments will be made at the end of each year, and each payment must be enough
to retire 10% of the original amount of the issue. The last sinking fund payment will retire the last of the bonds.
The bonds to be retired each period can be purchased on the open market or obtained by calling up to 5% of
the original issue at par, at VDC’s option.
4. How large must each sinking fund payment be if the company uses the option to call bonds at par?
5. How large must each sinking fund payment be if the company decides to buy bonds on the open market?
(You can only answer in words.)

GRADING RUBRIC:
CRITERIA POINTS
Complete solution with correct answer 5
Half of the solution is correct. 3
First major step of the solution is correct. 1

07 Task Performance 1 *Property of STI


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