# Assignment 3 Sp 2014

Topics: Bond, Stock, Yield Pages: 2 (890 words) Published: April 3, 2015
BUSS207
Spring, 2014
Assignment 3
(Due by May 28, 2014)

1. Use the following corporate bond price quote information to answer the questions that follow. Assume the company makes semi-annual coupon payments and also assume the bond matures on today’s date (May 28) in its maturity year. Note that price is expressed in percentage of par value.

Company
XYZ Inc.

Coupon
7.000

Maturity
May. 28,
2017

Price
97.667

Yield

a. How much would this bond cost you to buy today if its par value is \$1000? b. What is the bond’s yield to maturity?
c. If your required return is 9% APR, would you buy this bond today? Show work to prove why or why not.
2. A year ago, you purchased two bonds issued by the same company, ABC Co. : (1) a 20year \$1,000 par value, annual coupon bond with a 7 percent coupon rate, and (2) a 5-year \$1,000 par value, annual coupon bond also with a 7 percent coupon rate. Both bonds had a yield to maturity (required rate of return) of 9 percent when you bought them. a. What price did you pay for each bond a year ago?

b. Today, assume the yield to maturity on both bonds is 11 percent. What is total rate of return on each bond if...