Expert answer:Unit 9 Alternative Assignment to the Seminar, busi

Answer & Explanation:View this week’s archived Seminar “Attached”  and write a 1 page paper, double spaced that summarizes the Seminar and what you learned.unit_9.pptx
unit_9.pptx

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1
Chapter 7 – Interest Rates and Bonds
INTEREST RATES AND
BONDS
Chapter 7
2
Chapter 7 – Interest Rates and Bonds
Bond Price Reporting
3
Chapter 7 – Interest Rates and Bonds
Problem
A bond with an annual coupon of $100 originally sold at par
for $1,000. The current yield to maturity on the bond is 9%.
Assuming no change in risk, this bond would sell at a ____
in order to compensate __________.
A. Discount, the issuer for the higher cost of borrowing.
B. Premium, the purchaser for the above market coupon
rate.
C. Discount, the purchaser for the above market coupon
rate.
4
Chapter 7 – Interest Rates and Bonds
Solution
❖Premium, the purchaser for the above market coupon
rate.
5
Chapter 7 – Interest Rates and Bonds
Problem
Oncor Energy bonds are currently trading at $1,291.08.
The bonds have a face value of $1,000, a coupon rate of
7% with coupons paid annually, and they mature in 10
years. What is the yield to maturity of the bonds?
What are you solving for?
Solve the problem using Excel.
6
Chapter 7 – Interest Rates and Bonds
Solution
Solve for Rate:
Nper: 10
PMT: 70
PV: -1291.08
FV: 1000
Answer: 3.50%
7
Chapter 7 – Interest Rates and Bonds
Problem
You have just purchased a 15 year, $1,000 par value US
Government bond for $909.20. The yield to maturity on
the bond is 8.6%. What is the coupon rate?
What are you solving for?
Solve the problem using Excel.
8
Chapter 7 – Interest Rates and Bonds
Answer
Solve for PMT
Rate: .086
Nper: 15
PV: -909.20
FV: 1000
= $75
Answer= 75/1000= 7.5%
9
Chapter 7 – Interest Rates and Bonds
Problem
❖Consider an annual coupon bond with a face value of
$100, 8 years to maturity, and a price of $88. The
coupon rate on the bond is 2%. If you reinvest
coupons at a rate of 1% , then how much money do
you have if you hold the bond to maturity?
10 Chapter 7 – Interest Rates and Bonds
Answer
❖This is a two step question.
❖First, we know we get the $100 back upon maturity.
❖Second, we need to calculate how much we would earn on the
reinvested dividends.
❖Using Excel, solve for FV
Rate: .01
Nper: 8
PMT: 2
PV: 0
Answer: $16.57
=$116.57
11 Chapter 7 – Interest Rates and Bonds
Problem
Beam Inc. bonds are trading today for a price of
$1,294.64. The bond pays annual coupons with a
coupon rate of 9.5% and the next coupon is due in one
year. The bond has a yield to maturity of 6.82%. How
many years are there until the bond matures?
What are you solving for?
Solve using Excel.
12 Chapter 7 – Interest Rates and Bonds
Answer
Solving for Nper
Rate: .0682
PMT: 95
PV: -1294.64
FV: 1000
Answer: 21 years
13 Chapter 7 – Interest Rates and Bonds
Problem
What is the yield to maturity of a 9.2% semiannual
coupon bond with a face value of $1,000 selling for
$864.42 that matures in 10 years.
What are you solving for?
Solve using Excel
14 Chapter 7 – Interest Rates and Bonds
Answer
❖Solve for Rate
Nper: 20
PMT: 92/2
PV: -864.42
FV: 1000
Answer: 5.759%
Multiply by 2:
11.518%
15 Chapter 7 – Interest Rates and Bonds
Problem
What is the yield to maturity of a 9.1% semiannual
coupon bond with a face value of $1,000 selling for
$864.61 that matures in 10 years?
16 Chapter 7 – Interest Rates and Bonds
Answer
Solve for Rate
Nper: 20
Rate: 91/2
PV: -864
FV: 1000
Answer: 5.702%
Multiply by 2: 11.404%
17 Chapter 7 – Interest Rates and Bonds
Example
A 10-year bond pays interest of $26.60 semiannually,
has a face value of $1,000, and is selling for $815.74.
What are its annual coupon rate and yield to maturity?
18 Chapter 7 – Interest Rates and Bonds
Answer
Coupon rate:
26.60*2= 53.20
53.20= 5.32%
Coupon rate= 5.32%
YTM:
Nper: 10
Pmt: 53.20
PV: -815.74
FV: 1000
YTM= 8.04%
19 Chapter 7 – Interest Rates and Bonds
Example
Springfield Nuclear Energy Inc. bonds are currently
trading at $928.09. The bonds have a face value of
$1,000, a coupon rate of 10% with coupons paid
annually, and they mature in 15 years. What is the yield
to maturity of the bonds?
20 Chapter 7 – Interest Rates and Bonds
Answer
Nper: 15
Pmt: 100
PV: -928.09
FV: 1000
Rate: 11%
21 Chapter 7 – Interest Rates and Bonds
Problem
Wee Beastie Animal Farm bonds have 8 years to
maturity and pay an annual coupon at the rate of 5.9%.
The face value of the bonds is $1,000. The price of the
bonds is $1,063.54 to yield 4.92%. What is the capital
gain yield on the bonds?
22 Chapter 7 – Interest Rates and Bonds
Answer
Capital Gain Yield=
YTM – Coupon Yield
Coupon Yield= C/PV
23 Chapter 7 – Interest Rates and Bonds
Answer
Coupon Yield= 59/1063.54
=.0554751
Capital Gain Yield= 4.92-5.54751= -.062751
= -0.63%
…
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