Case Study Questions

1. What are the yields to maturity (YTMs) on the three bonds? Please do this analysis by mapping out the cash flows rather than using, for example, the yield function in excel.

2. Assuming the reported credit ratings are correct and that the market yields for those ratings are appropriate expected returns (benchmark) for the bonds, quantify the attractiveness of the bonds in two ways: How does the yield compare to the benchmark? How does the current price compare to the benchmark-yield implied price?

3. Janet O'Brien suggests that the bond ratings are incorrect. If O'Brien's alternative ratings (a full category improvement) are correct, and the market yields are appropriate expected returns for the bonds, once again quantify the attractiveness of the bonds in two ways: How does the yield compare to the benchmark? How does the current price compare to the benchmark-yield implied price.