Fin 340, Fall 2017, Exam 2, Part 2A Circle class time 9:30 7:05 Answer each of t

Question

Fin 340, Fall 2017, Exam 2, Part 2A Circle class time 9:30 7:05 Answer each of the following questions, Full and partial credit will only be given if you show your werk Have your calculators set for four decimal places, have all final answers with at least two decimal places 1.Bond Yields: You are considering a 15 year, $1,000 face (par) value bond with an 8 percent annual coupon. bond if the bond is selling for $918.56? (State answer in annual percentage rate) a. The bond pays interest semi-annually. What is the current yield to maturity on the cyPyEndor Bgn mode (circde one) PMT 40 Pv The above bond is cal you buy the bond today for $918.56, what is the bond's yield to call? (State answer in annual percentage rate.) b. ter it has been outstanding 4 years at a call price of $1040. If py nd gr Bgn mode (circle one) FV 640 918.5 PMT 01 If you required a 9.0 of return on this bond, would you purchase the bond? c. Circle: Yes orNo 2. Bond Quotes Consider the following bond quotes and in the space provided, assuming each have a par value of $1,000, write the price of these bonds in dollars a. Treasury bond quoted at 103.5,15o b. Corporate bond quoted at 94.05-94 ,050 3. Taxable equivalent yield what is the taxable equivalent yield if a municipal bond has a yield to maturity of 3.00% for an investor in a 28% marginal tax bracket? 0 3

Explanation / Answer

N = 30, FV = 1000, PMT = 8%/2*1000 = 40, PV = -918.56

use rate function in Excel and ultiply by 2

1/Y = 9.00%

2. N = 8, FV = 1040, PMT = 40, PV = -918.56

use rate function and multiply by 2

yield to call = 11.41%

c. yes since the expected yield is 9%

d. treasury bond = 1000*103.75% = 1037.50

. corporate bond = 1000*94.05% = 940.50

3. taxable yield = 3%/(1- 0.28) = 4.17%

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