Question
You are currently considering buying an Ecolab corporate bond. The bond has the following characteristics: The...
You are currently considering buying an Ecolab corporate bond. The bond has the following characteristics:
The current year is 2018 $1000
Par value of bond 8%
Coupon rate
Bond was issued in 2013
Bond will mature in 2043
Payments are made semi-annually
Callable 10 years after issue
Call price $1050
Current market interest rate 6%
What is this bond's current yield?
What is this bond's yield - to - maturity?
What is this bond's yield - to - call?
Why would investors choose bonds over stocks?
What variables impact the price (value) of a bond?
How do investors evaluate the risk of a bond?
What are the major differences between corporate bonds and U.S. Treasury Bonds?
Please show work on excel and show formulas on it please!
Homework Answers
Answer #1
As per rules I will answer the first 4 sub parts of the question
| Par value | $1,000 | |
| Coupon rate | 8% | |
| Numer of years to maturity | 30 | |
| Semiannual payments | ||
| Years to call | 10 | |
| Call price | $1,050 | |
| Market interest | 6% | |
| Current price of bond | ($1,276.76) | |
| 1 | Current yield= Annual coupon/ Price | 6.27% |
| 2 | YTM=Current market interest | 6% |
| 3 | YTC | 4.87% |
| 4 | An investor may choose bonds over stocks since current yield is more than current market interest rate. | |
| They will also receive regular return in the form of interest rather than irregular dividend payments in case of shares. | ||
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