I\'m needing assistance with 3 questions found below. Any help would be apprecia

Question

I'm needing assistance with 3 questions found below. Any help would be appreciated.

Interest Payments: Determine the interest payment for the following three bonds: 5 ½ percent coupon corporate bond (paid semiannually), 5.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000,000 par value.)

Call Premium: A 6.25 percent corporate coupon bond is callable in 7 years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Bond Quotes: Consider the following three bond quotes; a Treasury note quoted at 107:27, and a corporate bond quoted at 102.75, and a municipal bond quoted at 102.95. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $10,000, what is the price of these three bonds in dollars?

Explanation / Answer

Calculation of interest payments:

Interest on 5½ percent bond (paid semiannually) = $1,000,000 *5.5%*6/12 = $27,500

Interest on 5.25 percent coupon Treasury bond = $1,000,000 * 5.25% = $52,500

Interest on zero coupon bonds = $1,000,000 - $990,000 = $10,000

Note: Assume If zero coupon bonds are issued discount at $990,000 for 10 years. The amount of $10,000 is zero coupon bonds income.

Calculate the call premium:

Call premium = $1,000 * 6.25% = $62.5

Calculate the bonds quotes:

Treasury note quoted price = $1,000 *1.0727 = $1072.70

Corporate bond price = $1,000 * 1.0275 = $1027.50

Municipal bond price = $10,000 *1.0295 = $10,295

Note: Assume corporate bond price par value is $1,000.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.