Hi :) can you please solve this i need help. Thank you :) Chapter 7 problem 11 T
ID: 2738702 • Letter: H
Question
Hi :) can you please solve this i need help. Thank you :)
Chapter 7 problem 11
The following bond list is from the business section of a newspaper on January 1, 2012. Notice that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon-the coupon rate is in the column labeled Coupon The Last Price and Last Yield columns indicate each bond's price and YTM at the end of trading. EST Spread indicates the bond's spread above the relevant U.S. Treasury benchmark, given as a percentage. UST indicates which U.S Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Prices are stated relative to a par value of $100 Fill in the nominal YTM for Pickman Inc.'s bonds Last EST UST EST Volume Maturity Last Yield 11.11% 11.65% 5.62% 5.14% Price Spread (Years) Company Schubert Inc. Chapman Inc. Rust Inc. Murphy & Co Pickman Inc. Coupon (1000s) 8.13% 01-01-2022 $82.25 9.63% 01-01-2042 $83.20 4.50% 01-01-2017 $95.18 5.38% 01-01-2017 $101.02 7.75% 01-01-2022 $93.86 6.20 7.15 1.37 0.89 3.77 72,070 65,275 59,277 57,465 56,305 10 10Explanation / Answer
Q. 2) Which Bond is trading at a Premium ?
Answer:- Murphy & Co.
Explanation:- Since the yield of 5.14 % is less than the prevailing coupon rate of 5.38 %, therefore, the bond of Murphy & Co. is trading at premium to its face value.
Q. 1) If Chapman Inc. want to issue new 30 years bonds today, then the Coupon rate the bonds would have to paid to be issued at par = 11.65 % [ Equal to yield]
Conclusion:- 11.65 %.