Chap 5 - Bonds Flashcards
Price of Bond (semiannual pmts)
i.e.
par:1000
Time to maturity: 15 yrs
Coupon rate: 11%
YTM = 13%
Semiannual pmts
Solve for PV
i.e. N=15x2 I/y=.13/2 PV=??? = 869.41 FV=1000 PMT=110/2
Yield to Maturity
i.e.
SCorp issued 20 yr bonds 2 yrs ago at a coupon rate of 8.9%. The bonds make semiannual pmts. If these bonds currently sell for 110% of par value, what is YTM?
Solve for I/y
i.e. N = 36 I/y=??? = 3.927% x 2 = 7.85% PV=-1100 FV=1000 PMT=89/2
Coupon Rate
i.e.
LCorp has bonds on the market with 12.5 yrs to maturity, a YTM of 7.3 %, a par value of $1000, and current price of $1057. Bond makes semiannual pmts.
Solve for PMT
i.e. N=12.5x2 I/y=7.3/2 PV=1057 FV=1000 PMT=??? = $40.01x2/$1000 = 8%
…multiply pmt by 2 due to semi annual pmts
Price of Bond (annual pmt)
i.e.
Outstanding bond with a par value of 1000, 10 yrs to maturity, and coupon rate of 6.4% pd annually.
Solve for PV
i.e. N=10 I/y=7.5 PV=???=924.50 FV=1000 PMT=64
Treasury Bill Rate
(1 + R) = (1 + r)(1 + h)
where… (R=Treasury bill rate
r = real rate)
(h = inflation rate)
Previous day’s asked price
today’s asked price - change
Current yield
CY = annual coupon pmt/price
Effective Annual Return
i.e.
BSoftware has 10% coupon bonds on the market with 19 yrs to maturity. The bonds make semiannual pmts and currently sell for 107.8% of par.
Solve for EFF
i.e.
NOM = 9.13
C/y = 2
EFF = ??? = 9.34
Invoice Price (Dirty Price)
Dirty Price = Clean Price + Accrued Interest
Capital gains yield
CGY = (New price - Original Price)/Original Price
Holding Period Yield (HPY)
i.e.
Suppose that today you buy a bond with an annual coupon rate of 11% for $1130. The bond has 18 yrs to maturity. What rate of return do you expect to earn on your investment?
Solve for R in I/y
i.e. N=2 I/y=??? = 13.36% PV=1130 FV=1000 PMT=110
