Namie: Section: Seore Date Instruction: Write Tf the answer is'Trueand Fif the answer Is False in the space provided for each number, ‘The market value of any real or financial asset, including stocks, bonds, or artwork purchased in hope of selling, it at a profit, may be estimated by determining future cash flows and then discounting them back to the present. Acall provision gives bondholders the right to demand, or “call for,” repayment of a bond. ‘there is an inverse relationship between bonds’ quality ratings and their required rates of return. ‘zero-coupon bond is a bond that pays no interest and is offered and initially sells at par, If the required rate of return on a bond (rd) is greater than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until the bond matures, in which time its market value will equal its par value. ‘The current yield of a bond will equal its coupon rate when the bond is selling at par value. ‘The sensitivity of a bond’s value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows. So long as a bond sells for an amount above its par value, the coupon interest rate and yield to maturity remain equal. ‘As the maturity date of a bond approaches, the bond’s market value approaches its par value. Shorter-term bonds have greater interest rate risk than do longer-term bonds, ‘The yield to maturity is the annualized discount rate that equates the future coupon and principal payments to the initial proceeds received from the bond offering, ao19. 20. a. 2. 23. 2. ‘Treasury bond dealers may trade Treasury bonds among themselves. Under the STRIP program created by the Treasury, stripped securities are created and sold by the Treasury. Corporate bonds that receive a higher rating from credit rating agencies are normally placed at lower yields. Acall provision on bonds normally allows the firm to sell new bonds at par value. Bonds that are not secured by specific property are called debentures. Assume that you purchased corporate bonds one year ago that have no protective covenants. Today, it is announced that the firm that issued the bonds plans a leveraged buyout. The market value of your bonds will likely rise as a result. During weak economic periods, newly issued junk bonds require lower risk premiums than in strong economic periods. Zero-coupon bond corporate bonds have the most active secondary market. If interest rates suddenly decline, those existing bonds that have a call feature are less likely to be called. Corporate bonds can be placed with investors through a public offering ora private placement. Corporate bonds are less standardized than stocks, Bonds issued by large well-known corporations in large volumes are liquid because most buyers hold these bonds until maturity. ‘The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies. ‘The key difference between a note and a bond is that note maturities are usually less than one year, while bond maturities are one year or more.OSS Score: Name: Section: Date: ROT PMU CMH Instruction: Encircle the letter that corresponds to the correct answer. 1. A(n)_____ is used to outline the issuing company's contractual obligations tobondholders. a. mortgage c. bond rating b. debenture 4d. indenture 2. Itisyield to maturity ona bond: a. ° Itis fixed in the indenture. b._ Itislower for higher-risk bonds. c.Itisthe required return on the bond. 4._Itis generally equal to the coupon interest rate. 3. Which of the following events would make it more likely that a company would call its outstanding callable bonds? a. Thecompany’s bonds are downgraded. b. Market interest rates rise sharply. c. Market interest rates decline sharply. 4. The company's financial situation deteriorates significantly. 4. A.10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par at P1,000. Which of the following statements is correct? a. The bond's expected capital gains yield is zero. b. The bond's yield to maturity is above 9%. c. The bond's current yield is above 9%, d. Ifthe bond’s yield to maturity declines, the bond will sell at a discount. 5. Which of the following statements is correct? a. Azero-coupon bond’s current yield is equal to its yield to maturity. b. Ifabond’s yield to maturity exceeds its coupon rate, the bond will sell at par. c. Allelse equal, ifa bonds yield to maturity increases, its price will fall. d. Ifabond’s yield to maturity exceeds its coupon rate, the bond will sell at a premium over par.A 15-year bond with a face value of 1,000 currently sells for P850. Which of the following statements is correct? a. ‘The bond's coupon rate exceeds its current yield. b. Thebond’s current yield exceeds its yield to maturity. 6 da. ‘The bond's yield to maturity is greater than its coupon rate. ‘The bond’s current yield is equal to its coupon rate. Which of the following statements is correct? a All else equal, high-coupon bonds have less reinvestment rate risk than low- coupon bonds. All else equal, long-term bonds have less reinvestment rate risk than short-term bonds, Allelse equal, low-coupon bonds have less interest rate price risk thanhigh-coupon bonds. 4. All else equal, short-term bonds have less reinvestment rate risk than long-term. bonds. 1. Which of the following is used as a discount rate used to value a bond? a. Themarket rate of interest c. Determined by the issuing company b. Thecoupon interest rate d. Fixed for the life of the bond 1. Which of the following bonds are most sensitive to interest rate movements? a. Nocoupon and short-term maturity b. High coupons and short-term maturity High coupons and along-term maturity 4. Nocoupon and along-term maturity 10. Which of the following statements about convertible bonds is/are true? |. Bonds that may be converted to a certain number of shares of stock are determined by the conversion ratio. |. Options attached to bonds that give the bondholder the right to purchase stock ata preset price without giving up the bond. ml. Bonds are collateralized with certain types of automobiles. a. Tonly c. Mlonly b. Monly d. AllaretrueInstruction: Encircle the letter that corresponds to the correct answer. 4, Which one of the following bonds is the riskiest investment? 4. AN AAA-tated non-callable corporate bond with a sinking fund b. AnAA-tated callable corporate bond with a sinking fund ¢ AA-rated callable corporate bond without a sinking fund 4. AnAAA-rated callable corporate bond with a sinking fund 2. Which of the following statements is/are true about callable bonds? 1. Mustalways be called at par Il Willnormally be called after interest rates drop IIL Have higher required returns than non-callable bonds a. landIlonly c. Hand Ill only b. TandIllonly 4. Allofthem are correct 3. Which of the following statements about Eurobonds is/are true? 1. The issuer chooses the currency of denomination. IL. Spreads on firm commitment offers are lower for Eurobonds than for US. bonds. Ill, Eurobonds are bearer bonds. a. landllonly ce. Mandl b. and itlonly 4. Allaretrue 4. Which of the following statements about bearer bonds is/are true? 1. The registered owner automaticaly receives bond payments when scheduled IL. The coupons attached are redeemable by whoever has the bond. IIL, Itmatures on a series of dates. a. lonly ¢. Monly b, Honly d@. Allare trueIt is a Treasury security in which periodic coupon interest payments can be separated from each other and the principal payment. a. Till c. STRIP b. bond 4. Corporate bond Which of the following is correct regarding the price of the bond if the coupon rate equals the required rate of return? a. Equal toits par value . Belowits parvalue b. Above its par value d. Cannot be determined ‘The higher the investor's required rate of return on the coupon rate, the a. smaller the premium on the price, ¢. greater is the premium on the price. b. smalleris the discount on the price. d._greateris the discount on the price. About the prices of bonds, which among the following are most sensitive to interest rate movements? a. small coupon payments zero-coupon payments b. high coupon payments 4. answernot given Which of the following is correct as regards the prices of short-term bonds as compared to long-term bonds? a. equally volatile as ¢. more volatile than b. less volatile than 4. depends on the duration As interest’ rates, and consequently investors’ required rates of return, change over tine, the ___ of outstanding bonds will also change. a. maturity date c. parvalue 'b. coupon interest payment d._ price |. Assume that all interest rates in the economy declined from 10% to 9%. Which of the following bonds would have the largest percentage increase in price? a. An 8-year bond with a 9% coupon b. At-yearbond with a 15% coupon ¢.A3-year bond with a 10% coupon 4. A10-year zero-coupon bondScore; —____ Name: section: Date: CU eR Hee tnstruction: Encircle the letter that corresponds to the correct answer. 4. SCP Corporation would like to purchase a bond that has a par value of P1,000, pays P80 at the end of each year in coupon payments, and has 10 years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 75 percent, how much will SCP pay for the bond? a P1,000.00 c. P1,050.97 db. PI,03432 . Answer is not given >. Maja just purchased a P1,000 par value bond with a 10 percent annual coupon rate anda life of 20 years. The bond has four years remaining until maturity, and the yield to maturity is 12 percent. How much did Maja pay for the bond? a P8506 c. 1,000.00 b. P930.25 d. P1170.27 3. Bea would like to purchase a bond that has a par value of P1,000. The coupon rate is 10 percent per annum and pays interest semi-annually. The bond has three years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 12 percent, how much will Stephanie pay for the bond? a P71220 c. P950.83 b. P9177 d. P951.96 4 SGPT Corp. recently purchased corporate bonds in the secondary market with a par value of P10,000,000 a.coupon rate of 12 percent (with annual coupon payments), and four years until maturity. If SGPT intends to sell the bonds in two years and expects investors’ required rate of return on similar investments to be 10 percent at that time, what is the expected market value of the bonds in two years? a. P9,661,989,80 ¢. P10,347107.44 b. P10,000,000.00 4d. P10,633,973.09 5. Assume a bond with a Pi,o00 par value and a 12 percent coupon rate, two years remaining to maturity, and a 10 percent yield to maturity. The modified duration of this bond is : a. 158years c.. 1.89 years b. 175 years 4.196 years. aoaa 6. AP1,000 par bond with five years to maturity is currently priced at P892. Annual interest payments are P90, What is the yield to maturity? (Use the approximate yield to maturity) a, 13 percent . Mpercent b. 12 percent d, 10percent 7. SUV Corp. has forecasted its bond portfolio value for one year ahead to be P25,600,000 million. In one year, it expects to receive P2,500,000 in coupon payments. The bond portfolio today is worth P25,250,000 million. What is the forecasted return of this bond portfolio? a. 130% : c. 10.00% bd. 9.90% d. 11.29% 8. The T-note has a coupon rate of 0.625 percent and an asked yield of 0.853 percent. The remaining life of the T-note is 8 years. What is the asked price on the t-note? (use semiannual compounding)? a 93.47% Cc. 96.68% db. 95.20% d. 100.00% 9. Abond has a P1,000 par value and an 8 percent coupon rate. The bond has four years remaining to maturity and a 10 percent yield to maturity. This bond's modified duration is_____ years. a 132 c. 3.56 b. 334 d. Answer is not given Philippine Insurance Company (PIC) owes P550,000 in eight years. To fund this outflow, PIC wishes to buy STRIPS that mature in 10 years. The STRIPS have a P5,000 face value per STRIP and pay a 6 percent APR with semiannual compounding. How much must PIC s spend now to fully fund the outflow? a. P100,000.00 cc. 307,117.13, b. 304,521.66 dd. P739,154.01} EMnreL ei) Pd Name; Score: Section: ____ at Exercise 5. Multiple Ch _ See Instruction: Encircle the letter that corresponds to the correct answer. 1 On June 1, 2021, ABC purchased a P10,000 par T-bonds that matures in ten years. The ‘coupon rate is 8 percent and the price quote is 98-6.‘The last coupon payment was April 1, 2021, and the next payment is October 1, 2021 (184 days total). What is the accrued interest? (Use 30 days in a month) a. P13333 cc. P400.00 Db. P266.67 d. 53333 APEM Corporation purchased a P10,000 par T-bond that matures in 12 years. The coupon. rate is 6 percent and APEM bought the bond go days after the last coupon payment (90 days before the next). The ask yield is 7 percent. What was the dirty price of the bond? a. P9,295.45. cc. P9,347.08 ‘b. P9,313.75. d. P9,497.08 ‘ABC Corporation has a'T-bond with a P1,000 par value. It is quoted at a bid of 105-9 and an ask of 105-7. If ABC Corporation sells the T-bond, how much it will receive? a. 1,052.81. c. P1,057.22. b. P1,052.19. d. P1,059.22. Smartt, Inc. has a P1000 par value bond outstanding that was issued for 30 years 5 years ‘ago at a coupon rate of 15%. What is it yielding if it is selling for P938.81? (Use the approximate yield to maturity) a. Between 10% and 12% c. Between 14% and 16% b. Between 12% and 14% d. Between 16% and 18% ‘Mr. T is considering the purchase of an RFT bond with a 12% coupon rate. Interest is paid and compounded semiannually. The bond will mature in 10 years and has a P1,000 face value. The bond currently sells for P50. What is the annual yield to maturity for this bond? (Use the approximate yield to maturity) a. 12.00% c. 12.82% Db. 12.56% d. 1334% “A”6. AP1000 par value convertible bond has a conversion price of P50. It is currently selling for P1,200, even though the bond’s coupon rate and the market interest rate are equal. ‘The common stock obtained upon conversion is selling for P27 per share. What is the convertible bond's conversion ratio? a. 850 24.00 b. 20.00 d. 100.00 ABC Corporation has a P1000 par value convertible bond with a conversion price of P1009. 1 is currently selling for P560 even though the bond’s coupon rate and the market rate are equal. The common stock obtained upon conversion is selling for P54 per share. What is the convertible bond's conversion premium? a P2 cc. P4O b. P20 d. P60 8. Whatis the yield to maturity of a 12-year zero-coupon bond that sells for P420.00? a 4.64% c. 651% bd. 5.26% d. 750% 9. POS, Inc. issued P100 million of perpetual bonds. The bonds were issued in P2co denominations with an annual coupon interest rate of 10%. Determine the current yield on these bonds if they are purchased at the current price of P80. a 125% c. 8.0% b. 5.0% d. 125% 30. A P1,000,000 Philippine Treasury bond with 3 years to maturity with semi-annual payments is quoted at 6.62 bid, 6.60 asked, and an asked yield of 6.84. How much would you pay for this security? & P 965,800 cc. P967,000 bP 966,900 d. P1,000,000 “aName: section: Pareeenl _ Score: Date: E CNC sae, Exercise 6. Strcight Problems Instruction: Show your solutions in the space provided after each problem. L MJM Company has bonds outstanding with a P1,000 face value and 12 years left to maturity, They have a 9% annual coupon payment and their current price is P1,195. The bonds may be called in 7 years at 108% of face value. Requited: a ‘What is the call price? Answer: What is the approximate yield to maturity? Answer: What is the approximate yield to call? Answer: What is the current yield? Answer: Are the bonds likely to be called? Answer:2 Kookie Corporation issued 10-year, noncallable, 8.0% annual coupon bonds at their par value of P1,000 five years ago. Today, the market interest rate on these bonds is 7.5%. Required: a. What is the current price of the bonds? Answer: b. Whats the current yield of the bonds? Answer: 5-year, P1,000 par value bond has a 9.0% annual payment coupon. The bond currently sells for P900. Required: a. Whatis the yield to maturity? Answer: b. If the yield to maturity remains at its current rate, what will the price be 3 yeu from now? Answer: Deeds Corporation’s outstanding bonds have a P1,000 par value, a 9% coupon, 5 yeast maturity, and a 6.0% YTM. The coupons are paid semi-annually. Required: a. Whatis the price of the bonds? Answer: b. What is the capital gains or (loss) yield in year 3? Answer: aExercise 6. Straight Problems 5. Two years ago, Toothpaste Company issued a 12-year, 8% semiannual coupon bond at {ts par value of P1,000, Currently, the bond can be called in 5 years at a price of P1,050 and it sells for P80, (Use only the approximate yields) Required: a. Whatis the yield to maturity? Answer: 'b. Whatis the yield to call? Answer: c. Whatis the bond price 1 year from now? Answer: ._ Referring to letter c, what is the expected capital gain or (loss) yield? Answer: 6. In 2020, Murphy Company issued 15-year bonds with a 15% annual coupon rate at their P1,000 par value and was Issued at P950. The bonds had a 10% call premium, with 5 years of call protection. In 2025, Donkey called the bonds. (Use the approximate yield formula) Required: a. Whatis the yield to maturity? Answer: b. What is the yield to call? Answer: ¢. Was the decision to call the bonds correct? Answer: a(lf eee 7. Ms. Meta Bah has bonds issued with a par value of Pi,o00 and 20 years left, until it ‘matures. The coupon payment Is P120 every year. The bonds may be called in 10 years at 1,300, Currently, the bond sells at P1,400. ‘The interest rate after 1 year will be 11%. What Is the bond rate of return or the expected rate of return for one year of for the first year? Answer: 8. Kristine Company issued bonds that pay coupons of Po quarterly. The Par value of the | bonds 1s P1,000, Currently, the bonds sell at par. The original maturity of the bond is | years, Although it can be called in 5 years for P1,070. What is the effective annual retum required by the holders of these bonds? Answer: 9. FLT, a fund manager, finds the following quote for a corporate bond (P1,000 par, pave interest semiannually): @ What was the range of the price for the given day? Answer: b. How many dollars would you receive from each coupon payment? Answer; ©. Approximately what risk level is implied by the bond rating? Answer: 4, What would have been the Last Price on the day before? Answer;10. On September 5, 2021, Johnny Cash purchased a P10,000 T-bonds that will mature on July 15, 2033, the settlement occurs one day after purchase, so you receive actual ownership of the bond on September 6, 2021. The coupon rate on the ‘T-bond is 4.375 percent and the current price quoted on the bond is 105,250 percent. The last coupon payment occurred on April 15, 2021, 1444 days before settlement and the next coupon payment will be paid on October 15, 2021, 40 days from settlement. Required: a. Calculate the accrued interest due to the seller from the buyer at settlement. Answer: b. Calculate the dirty price ofthis transaction. Answer: 11. AP1,000 face value corporate bond with a 7.0 percent coupon paid semi-annually has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 75 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 8.5 percent. ‘What will be the change in the bond's price in pesos and percentage terms? Answer: 12, Pryce, Inc. has a convertible bond issue outstanding. Each bond, with a face value of 1,000, canbe converted into common shares ata rate of 50.25 shates of stock per P1,000 face value bond or the conversion rate, or P19.90 per share. Pryce’s common stock is trading at P15.90 per share and the bonds are trading at P975. Required: a. Calculate the conversion value of each bond. Answer: b. Determine if it is currently profitable for bondholders to convert their bonds into shares of Pryce Hotel, Inc. common stock. Answer: 2