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HOMEWORK CHAPTER 7

1- Use the WSJ listing to answer the following questions:
Maturity Ask
Rate Mo/Yr Bid Asked Yield
6.300 April 25 108:07 108:08 -----
4.625 April 17 90:17 90:18 -----
10.55 April 17 138:00 138:01 -----

For these bonds,
a. What is the asked price for each bond?
b. What is the YTM using the asked price?

2- If the following partial listing appeared in the WSJ:

Company Coupon Maturity Last Price Last Yield

AT&T 11.75 April 18, 2028 -------- 8.8
Rouse 9.85 April 18, 2023 -------- 10.5

For each bond:
a. Find the price of the bond.
b. If the AT&T bond could be called in 5 years at a call premium of $1060, what is the yield to call on the bond?
c. Should you compute the YTM or YTC on this bond? Why?
d. Without a computation, if the Rouse bond had a call provision, would that bond be called? Explain briefly.
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Solution Preview

1-a. What is the asked price for each bond?
The face value of the bond is usually $1000, then the asked price is computed by
Asked Price
108:08 =1000*108% + 8/32 = $ 1,080.25
90:18 =1000*90% + 18/32 = $ 900.56
138:01 =1000*138% + 1/32 = $ 1,380.03

b. What is the YTM using the asked price?
For the first bond, input in the calculator:
FV = 1000
N = 25
PMT = 1000*6.3% = 63
PV = - 1080.25
Then compute YTM rate (I/Y) = 5.7%

For the ...

Solution Summary

There are several questions here regarding YTM and bonds

$2.19