INTEGRATED CAS WESTERN MONEY MANAGEMENT INC. -20 BOND VALUATION Robert Black and Carol Alv
INTEGRATED CAS WESTERN MONEY MANAGEMENT INC. -20 BOND VALUATION Robert Black and Carol Alvarez are vice division. A major new client, the present an investment seminar to the mayors of the represented cities Cities, has and Alvanez, who will make the presentation, have asked you to help them by answering the following questions What are a bond's key features? What are call provisions and sinking fund provisions? Do these provisions make bonds more or less risky?
d How is a bond's value determined? what is the value of a 10-year, SL00 par value bond with a 10% isotherwise identical to the bond described in part d? c How is the value of any asset whose value is based on expected future cash flows determined? annual coupon if its required return is 10%? 1. What is the value of a 13% coupon bond t that
e. Would we now have a discount or a premium bond? 2 what-the value of a 7% coupon bond with these characteristics? Would we now have a discount or 3 what would happen to the values of the 7,10% and 13% coupon bonds over time if the required 1.
what is the yield to maturity on a 10-year, 9% annual coupon, SL00 par value bond that sells for 2 What ane the total retun, the curnent yield, and the capital gains yield for the discount bond? Assume premium bond eturn remained at 10u? [Hint With a financial calculator, enter PMT, L/YR, FV, and N; then change N to see what happens to the PV as it approaches maturity] 887 007 That sells for $1,134.20? What does the fact that it sells at a discount or at a about the between ra and the coupon rate? that it is held to maturity, and the company does rot default on iL (Hint Refer to footnote 7 for the yield and to Table 7.1.)