VALUES YTM; (7.09%, 8.24%, 7.36%. 9.23%) YTC; (9.23%, 7.764, 6.05%, 8.32%) What

Question

VALUES
YTM; (7.09%, 8.24%, 7.36%. 9.23%) YTC; (9.23%, 7.764, 6.05%, 8.32%)
What coupon rate must the bonds have to be issued at par ( 6.05% , 9.23%, 8.24%, 9.35%) courses.aplia.com Bonds and Their Valuation Graded Assignment | Read Chapter 7 | Back to Assignment Due Saturday 12.02.17 at 1115 PM Average: 1S Attempts: 2. Bond yields Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This Aa Aa percentage return is referred to as the bond's yield Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? O The bond is callable. The probability of default is zero. Consider the case of Blanche Inc. Blanche Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,070.35. However, Blanche Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Blanche Inc.'s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Blanche Inc.'s bonds? O 18 years O 13 years O 5 years O 10 years If Blanche Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par? Save & C noted a is 0 Dil fB FS F6

Explanation / Answer

Question - 1 ................Probability of default is Zero

Question - 2

YTM = 8.24 % ...............final answer

1070.35 the current market price = 90 ( 1 - (1+r)-18 / r + 1000 ( 1+r)-18

For ... r = 8% .......... we have 90 * 9.371887 + 1000 * 0.250249 =  1093.72

For .... r = 8.5% ....... we have 90 * 9.055476 + 1000 * 0.230285 = 1045.28

Using interpolation we find the currect " r " value that equals the equation to 1070.35

8 ....... 1093.72

x ........ 1070.35

8.5 .......1045.28

( x - 8) / (8.50 - 8) = ( 1070.35 - 1093.72 ) / ( 1045.28 - 1093.72)

x - 8 = 0.50 * [- 23.37 / -48.44]

x = 8.24 %

YTC = 8.32 %......................final answer

1070.35 the current market price = 90 ( 1 - (1+r)-8 / r + 1060 ( 1+r)-8

we r = 8.32 is substituted in the above equation we get 1070.27 which is almost equal to 1070.35 ... hence 8.32 is the answer for YTC

Question - 3

18 years ..................final answer

Question - 4

8.24%................final answer

When counpon rate equals the YTM we will have the bond priced at its par value

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