Question

Issuer Symbol Callable Coupon _rate Maturity Moody Rating GE BRK3680632 Yes 7.35% 07/15/2023 Aa3 Price Yield 124.38 _____ Use the above information to answer the following questions (31-38)

31. This bond is callable. This means that

a. GE bondholders can convert bond to stocks when the bond is called.

b. GE company is expected to call back this bond when the market interest rate decreases.

c. GE is expected to call back this bond when GE stock price increases.

d. GE is expected to call back this bond when GE stock price decreases.

32. The coupon rate is 7.35% annually. How much is the annual coupon?

a. $0.735

b. $7.35

c. $73.5

d. $735.0

33. Moody’s rating of this bond is Aa3. Who is Moody? What about the ranking, Aa3?

a. Moody is GE’s financial partner. Aa3 is a low ranking.

b. Moody is a bank. Aa3 is a low ranking.

c. Moody is a mutual fund. Aa3 is a top ranking.

d. Moody is a bond ranking agency. Aa3 is a top ranking.

34. The current market price of this bond is 124.38, meaning the bond is traded at 124.38%*1000=$1243.80 in the market. This annual bond pays annual coupon at coupon rate of 7.35%. The bond has 10 years left to maturity. Calculate the yield to maturity (yield) of this bond? (hint: use rate function)

a. 4.30%

b. 3.78%

c. 5.16%

d. 4.81%

35. The current market price of this bond is 124.38, meaning the bond is traded at 124.38%*1000=$1243.80 in the market. This annual bond pays annual coupon at coupon rate of 7.35%. The bond has 10 years left to maturity. Calculate the current yield of this bond? (hint: use current yield is like coupon yield)

a. 6.21%

b. 5.91%

c. 7.35%

d. 6.45%

36. One year ago, yield (to maturity) of bond was 8%. This annual bond pays annual coupon at coupon rate of 7.35%. The bond had 11 years left to maturity. Calculate the bond price at that time? (hint: use pv function)

a. $956.38

b. $1106.47

c. $691.24

d. $953.60

37. You expect the bond yield will be 3%. This annual bond pays annual coupon at coupon rate of 7.35%. The bond had 9 years left to maturity. Calculate the bond price at that time? (hint: use pv function) a. $1338.70 b. $1447.11 c. $1292.43 d. $1138.05 38. Imagine that GE also issued a zero coupon bond last month. This bond will mature in 10 years. Investors can get 5% of return from this bond annually. Calculate the bond price (Hint: this is a semi-annual bond. Use pv function).

a. $317

b. $492

c. $610

d. $538

Answer 1

31. Option B. GE company is expected to call back this bond when the market interest rate decreases

32. Option C. Annual Coupon = Face Value * 7.35% = 1000 * 7.35% = $73.50

33. Option D. Moody is a bond ranking agency. Aa3 is a top ranking

34. Option A 4.30% "RATE(10,73.50,-1243.80,1000,0)" Excel Function

35. Option B, Current Yield = Coupon / Current price = 73.50 / 1243.80 = 5.91%

36. Option D. $953.60 "PV(0.08,11,73.50,1000)" Excel Function

37. Option A. $1338.70 "PV(0.03,9,73.50,1000)" Excel Function

38. Option C. $610 "PV(0.025,20,0,1000)" Excel Function