Answer questions AE Question A Kessel Inc offers a zerocoupo

Answer questions A-E

Question A

Kessel Inc. offers a zero-coupon bond that has 30 years to maturity and the yield-to-maturity of similar bonds is 4%.  What is the market price of Kessel Inc.\'s bond?

Question B

Jakku Corp. bonds bearing a coupon rate of 3%, pay coupons semiannually, have five years remaining to maturity, and are currently priced at $970 per bond. What is the yield to maturity?

Question C

A bond carrying a 7% coupon rate that has a market price of $1,000 has a yield to maturity (YTM) that is...

Question 8 options:

A)

Greater than 7%

B)

Exactly 7%

C)

Less Than 7%

D)

Not enough information to determine YTM

Question D

A bond with a face value (par value) of $1,000 that is currently selling for less than $1,000 in the market is called a:

A)

Par Bond and the YTM < Coupon Rate

B)

Par Bond and the YTM > Coupon Rate

C)

Premium Bond and the YTM < Coupon Rate

D)

Premium Bond and the YTM > Coupon Rate

E)

Discount Bond and the YTM < Coupon Rate

F)

Discount Bond and the YTM > Coupon Rate

Question E

Holding everything else constant, which of the following would decrease the YTM for a bond? (Select all that apply, if any)

A)

Making the bond callable.

B)

Making the bond have senior priority of payment status over junior status.

C)

Making the bond backed by collateral.

D)

Lowering the credit rating of the bond.

E)

Making the bond\'s maturity date longer.

	A) Greater than 7%
	B) Exactly 7%
	C) Less Than 7%
	D) Not enough information to determine YTM

Solution

QUESTION A:-

Assuming the FV of a Zero coupon bond is $1,000

Price of a Zero coupon bond =FV/(1+ int)^n

Price of a Zero coupon bond =$1,000/(1.04)^30

Price of a Zero coupon bond = $1,000/ 3.2434

Price of a Zero coupon bond = $308.32

Question B:

Coupon = 1000 * 3%/2 i.e. 15 (since semiannually so divided by 2)

No of years = 5 years. Noof periods = 5*2 i.e. 10. (Since seminaanually payment so twice the payment in year)

YTM = {Coupon+(Face value -Price)/no of years} / {(Face value + Price)/2}

YTM = {15 + (1000 - 970)/10}/{(1000 +970)/2}

YTM = 18 / 985

YTM = 0.01827 i.e. 1.83% semiannually so Annual YTm = 1.83 * 2 i.e. 3.65%

QUESTION C:

B) Exactly 7%

Since the bond is having market price equal to par value which means the bond is paying the same interest rate as the market is giving. So YTM=Coupon rate. Hence the bond will have YTM of 7%.

QUESTION D

F) Discount Bond and the YTM > Coupon Rate

Since the Bond price is lower then its face value and hence the bond is at Discount and so it will be called as Discount Bond. A discount bond YTM is always greater then it Coupon as because the bond is at discount besacuse the coupon rate of the bond is lower as compare to market and so to cover the difference of interest the bond will be traded at dicount.

As per chegg policy upto 4sub part can be answered. I hope you understand. Please hit the like button and feel free to comments. Than you