Use the following corporate bond quote information to answer the questions that follow. Since this is a corporate bond, assume the company makes semi-annual coupon payments and also assume the bond matures on today’s date in its maturity year.
Bond Cur. Yld. Vol. Close Net Chg.
Doh! 9 ½ 18 9.0 5 105 1/2 - 1/4
Doh! 8 ½ 21 9.4 10 90 1/4 -1/2
1. How much would each bond cost you to buy today if its face value is $1000?
2. How much would each bond cost you yesterday if its face value were $1000?
3. What is each bond’s yield to maturity?
4. What is each bond’s expected capital gains yield today?
5. Now imagine you purchased each bond today at the current price. A year later the yield to maturity for each bond falls by one percentage point. What is your total rate of return for each bond?
6. Now imagine the same scenario in #5 (the last question) except the yield to maturity for each bond increases one percentage point for each bond a year later. What is your total rate of return for each bond?
7. Which bond do you prefer in #5, and what type of risk are you more exposed to if you choose this particular bond?
8. Which bond do you prefer in #6, and what type of risk are you more exposed to if you choose this particular bond?