Question: Please answer all questions and show work where needed. Part 1. Concept Practice Are the following bonds issued at par, premium, or discount? Discount, premium

Please answer all questions and show work where needed.

Part 1. Concept Practice

  1. Are the following bonds issued at par, premium, or discount?

Discount, premium or par

Coupon rate is 3%; yield is 4%

Annual coupon of $100; yield to maturity of 9%

Semi-annual coupon of $40; yield of 8%
  1. Bond A sells for $990 and Bond B sells for $1010. Both bonds have a yield of 4%. Which one has the higher coupon? (Please answer A, B or A=B.)
  2. Bond A is a par bond and Bond B is a discount bond. They are of the same riks. Which one has the higher coupon? (Please answer A, B or A=B.)
  3. Bonds of the same risk must have the same after-tax yield. (True or False.)
  4. A municipal bond should offer a higher yield to maturity than a similar corporate bond because of the tax advantage. (True or False.)
  5. A bond with semi-annual payments of $25 has a higher coupon rate than a bond with annual payment of $40. (True or False.)
  6. A bond with semi-annual payments of $25 has a higher coupon rate than a bond with annual payment of $50. (True or False.)
  7. If you pay a very high tax rate you would most likely prefer a municipal bond over a similar corporate bond. (True or False.)

Part 2. Calculation Practice

Instructions: Answer all questions below. Make sure to show your work.

  1. A bond has a coupon rate of 4% and pays coupons semi-annually. The bond matures in 10 years and has a yield of 4.5%. What is the value of the bond?
  2. What is the value of a 12-year bond with a coupon rate of 5% and a yield of 5.5%? Payments are semi-annual.
  3. A bond sells for $1000 and matures in 6 years. The bond makes semi-annual payments and has a yield of 3%. What is the coupon rate? What is the coupon?
  4. A bond sells for $1015 and matures in 6 years. The bond makes semi-annual payments and has a yield of 3%. What is the coupon? What is the coupon rate?
  5. A zero-coupon bond has a yield of 4% and a time to maturity of 6 years. What is its value?
  6. Your tax rate is 25% and you own a taxable bond earned a yield of 6%. What is your yield after taxes?

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