4.Calculate the value of a non-callable 10-year bond with a coupon rate of 6% co

Question

4.Calculate the value of a non-callable 10-year bond with a coupon rate of 6% compounded semi-annually if you expect 8% yield on the bond. Assume a $1,000 face value for the bond.
A) $864.10
B) $918.89
C) $1,137.11
D) $828.81
E) $1,085.30

5.Calculate the spread to treasuries on a 30 year corporate bond with a coupon rate of 9% using the following yields:
2 year treasury: 3.0%
10 year treasury: 4.0%
10 year municipal: 3.5%
30 year treasury: 5.5%
Federal funds rate: 7.0%
A) 4.0%
B) 4.5%
C) 5.5%
D) 3.0%
E) 3.5%

12.Calculate the taxable equivalent municipal bond yield based on the following information:
Tax rate = 25%
Tax-Exempt Interest Rate = 6%
A) 15.0%
B) 24.0%
C) 8.0%
D) 4.5%
E) 9.5%

Explanation / Answer

4) According to the given information, FV = $1000 NUmber of years = 10 Semi-annual YTM = 8% / 2                              = 4% Semi-annual periods = 10 * 2                                 = 20 Coupon payment = 6% * $1000                            = $60 Semi-annual coupon payment = $60 * (6/12)                                              = $30 Calculating the value of the bond using excel sheet: Step1: Go to excel and click "insert" to insert the function. Step2: Select the "PV" function as we are finding the value of the bond in this case. Step3: Enter the values as Rate = 4%; Nper = 20; PMT = -30; FV = -1000 Step4: Click "OK" to get the desired value. The value comes to "$864.10" The correct option is a) $864.10 5) The difference in yield between the offered yield of the bond you are researching and the yield of its Treasury of similar maturity. The spread is measured in basis points (1 / 100 of a percentage point) The correct option is d) 3.0% 12) Calculating the taxable equivalent yield on municipal bond: TEY = Interest rate / (1 - Tax rate)         = 0.06 / (1 - 0.25)         = 0.06 / 0.75        = 0.08 or 8% The correct option is 8%

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