1. What is the price immediately after a coupon is paid on a $1000 par value bon
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Question
1. What is the price immediately after a coupon is paid on a $1000 par value bond with twenty annual coupon payments remaining, coupon rate of nine-percent, and yield to maturity of ten-percent? A) $1000 B) Less than $1000 C) Greater than $1000 D) Cannot be determined; insufficient information 5. Consider the bond in the previous two questions. Calculate the expected capital gains yield over the next year if the yield to maturity remains unchanged at 9- percent. A) 2-percent B) 0.5-percent C) 0.2-percent D) Zero E) Minus 1-percent 2. Consider two bonds; both bonds have the same par value and the exact same coupon payments remaining. Then the bond with the higher price will have: A) Lower yield to maturity B) Same yield to maturity C) Higher yield to maturity D) A higher return E) None of the above 6·The issuer of a bond determines the: A) Par value, coupon rate and market value B) Yield to maturity, coupon rate, and par value C) Maturity, coupon rate, and par value D) Yield to maturity and coupon rate E) None of the above 3. Consider a bond with ten years to maturity, eight-percent coupon rate, $1000 par value and 9-percent yield to maturity. Suppose an annual coupon has just been paid, calculate the bond price. A) $1067.10 B) $1005.46 C $1000 D) $975.23 E) $935.82 7. Calculate the ex-dividend price immediately after a $2.40 dividend was paid on a preferred stock having a: dividend growth rate per period and a discount rate oft percent per period. A) S10 B)S12 C) $20 D) $22 E)$24 8. Calculate the ex-dividend price immediately after a $3.60 dividend was paid on a common stock having a constant dividend growth rate of three-percent per per and a discount rate (required return) of 9-percent per period. A) S61.8 B) $60 C) $56.4 D) $41.2 E) $40 4. Consider the bond in the previous question. Calculate the expected coupon yield over the next year if the yield to maturity remains unchanged at 9-percent. A) 9-percent B) 8.5-percent C) 8-percent D) 1-percent E) ZeroExplanation / Answer
Answer 1.
Par Value = $1,000
Annual Coupon = 9%*$1,000 = $90
YTM = 10%
Number of coupon payment = 20
Price of Bond = $90 * PVA of $1 (10%, 20) + $1,000 * PV of $1 (10%, 20)
Price of Bond = $90 * (1 - (1 / 1.10)^20) / 0.10 + $1,000 / 1.10^20
Price of Bond = $914.86
So, price of bond is lower than $1,000
Answer 2.
Price of bond will be higher when YTM is lower.
Price of Bond is calculated by discounting future cash flows.
Two bonds with similar coupon payment and par value will differ on account of YTM
Bond with higher YTM will have lower price and a bond with lower YTM will have higher price
Answer 3.
Par Value = $1,000
Annual Coupon = 8%*$1,000 = $80
YTM = 9%
Number of coupon payment = 10
Price of Bond = $80 * PVA of $1 (9%, 10) + $1,000 * PV of $1 (9%, 10)
Price of Bond = $80 * (1 - (1 / 1.09)^10) / 0.09 + $1,000 / 1.09^10
Price of Bond = $935.82
So, price of bond is $935.82
Answer 4
Price of Bond = $935.82
Annual Coupon = $80
Coupon Yield = Annual Coupon / Current Price
Coupon Yield = $80 / $935.82
Coupon Yield = 8.5%
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