Question

3. Harry’s Diamond Emporium issued a bond with a 20-year maturity, a $1,000 par value, and a 10% coupon rate with semi-annual payments. Three years after the bond was issued, the going rate on similar risk bonds fell to 7 percent. It is expected to stay at this level for the remainder of the bond’s life.

a. Calculate the current yield and the capital gains yield that the bond will generate in the fourth year (Year 4) of its life. (Hint: Calculate the value of the bond after three years (17 years remaining) and four years (16 years remaining), then calculate the yields.)

Answer #1

1.

**a. Current Yield = Annual Coupon / Price after 3 years =
100 / $1189.77 = 8.40%**

**b. Capital gains Yield = YTM - Current Yield = 7% -
8.40% = - 1.40%**

# 2 – Jay’s Grappling Gym has an outstanding bond that has a
$1,000 par value and a 6.5% coupon rate. Interest is paid
semi-annually. The bond has 13 years remaining until it matures.
Today the going interest rate is 10.5 percent, and it is expected
to remain at this level for many years in the future. Compute the
a) bond’s current yield, b)
current gains yield that the bond will generate this year, and
c) total return generated in...

Three years ago, Jack’s Automotive Jacks issued a 20-year
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PLACES*
(a) What is the bond’s yield to maturity?
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A 10-year bond is issued with a face value ofK1,000, paying
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market yields increase shortly after
the T-bond is issued, what happens to the bond’s
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b. Price?
c. Yield to maturity?
A 10-year bond is issued with a face value ofK1,000, paying
interest of K60 a year. If
market yields increase shortly after
the T-bond is issued, what happens to the bond’s
a. Coupon rate?
b. Price?
c. Yield to maturity?

A 30-year Treasury bond is issued with a face value of $1,000
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market yields decrease shortly after the Treasury bond is issued,
what happens to the bond’s coupon rate, current yield, and yield to
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all three increase
all three decrease.
the coupon rate increases, the current yield increases, and the
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the coupon rate stays the same, the current yield decreases,
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Genesis corp. issued a 20-year semi-annual bond with a face
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$1,080
$1,000
$966

Chavez Industries, has an outstanding bond that has a $1000 face
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bond has 7 years remaining until it matures. Today the interest
rate on similar risk bonds is 5.7% and it is expected to remain at
this level for many years in the future. Compute the following: A).
The bond’s current price B). The bond’s price one year from today
C). The current yield the bond will generate this...

A 10-year, 12 % semiannual coupon bond with a par value of
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b. What is the bond’s current yield? (15 points)
c. What is the bond’s capital gain or loss yield in the first year
in percent? (15 points)
d. What is the bond’s yield...

QUESTION THREE
a. The Kenya Government has issued a 20-year bond with a par
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REQUIRED
What would be a fair price for these bonds?
Suppose interest rates rise immediately after treasury issued
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REQUIRED
Calculate the price of the...

In Excel with formulas--
A 10-year, 12 % semiannual coupon bond with a par value of
$1,000 may be called in 7 years, at a call price of $1,100. The
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issued).
a. What is the bond’s yields to maturity?
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c. What is the bond’s capital gain or loss yield in the first
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d. What is the bond’s yield to call?

A newly issued 20-year maturity, zero-coupon bond is issued with
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