Valuing Bonds - nosneb - 78466

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Price: $8
  • From: Business, Finance
  • Due on: Sun 06 Mar, 2016 (03:00pm)
  • Asked on: Sat 05 Mar, 2016
  • Due date has passed, but you can still Post Solution.
Description
  • Question 1:
    • Proficient-level: "What does a call provision [call feature] allow [bond] issuers to do, and why would they do it?" (Cornett, Adair, & Nofsinger, 2016. p. 184).
    • Distinguished-level: State what additional compensation is paid, in addition to the bond principal, when a bond is called.
  • Question 2:
    • Proficient-level: "Provide the definitions of a discount bond and premium bond. Give examples" (Cornett, Adair, & Nofsinger, 2016, p. 184).
    • Distinguished-level: Explain why market interest changes are reflected in bond prices.
  • Question 3:
    • Proficient-level: "Describe the differences in interest payments and bond prices between a 5 percent coupon bond and a zero coupon bond" (Cornett, Adair, & Nofsinger, 2016, p. 184).
    • Distinguished-level: Given a change in market interest rates, determine which of the two bonds would remain closer to its par value.
  • Question 4:
    • Proficient-level: "Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 3.8 percent" (Cornett, Adair, & Nofsinger, 2016, p. 185).
      • Assume semi-annual compounding.
    • Distinguished-level: State why zero coupon bonds are sold at steep discounts.
  • Question 5:
    • Proficient-level: "Compute the price of a 3.8 percent coupon bond with 18 years left to maturity and a market interest rate of 6.8 percent" (Cornett, Adair, & Nofsinger, 2016).
      • Assume interest payments are paid semi-annually, and solve using semi-annual compounding.
    • Distinguished-level: Explain why the bond is either a discount bond or a premium bond.
  • Question 6:
    • Proficient-level: "A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity [interest rate] is the bond offering?" (Cornett, Adair, & Nofsinger, 2016, p. 186).
      • Assume interest payments are paid semi-annually, and solve using semi-annual compounding.
    • Distinguished-level: Explain what effect a decrease in the offered sales price would have on the yield to maturity.

 

Question 4 - The correct price (present value) of the bond will fall between the range of $470.00 and $479.99. (reminder: you are also required to identify the known variables used in order to obtain the correct response to this, and in all, quantitative problems.)

Question 5 - The correct price (present value) of the bond will fall between the range of $690.00 and $699.99. (reminder: you are also required to identify the known variables used in order to obtain the correct response to this, and in all, quantitative problems.)

Question 6 - The correct yield to maturity (I) of the bond will fall between the range of 5.00% and 5.99%. Be sure to solve and show response out to four decimal places, as I have show in the range amounts I have provided. (reminder: you are also required to identify the known variables used in order to obtain the correct response to this, and in all, quantitative problems.)

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