PLEASE ANSWER ALL QUESTIONS FOR 5 STAR REVIEW!!!!

QUESTION #1 -

1. Types of bonds Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following types of bonds have the least default risk? 0 Treasury bonds Municipal bonds Corporate bonds Based on the information given in the following statement, answer the questions that follow: New York City issued a general obligation bond for a canal in 1812. It was the first formal debt instrument with a fixed repayment schedule issued by a city. Who is the issuer of the bonds? Federal Reserve Bank of New York Bank of New York The New York City government What type of bonds are these? Municipal bonds Treasury bonds Corporate bonds 2. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic value and its par value. This also results from the relationship between a bond's coupon rate and a bondholder's required rate of return. Remember, a bond's coupon rate partially determines the interest-based return that a bond V pay, and a bondholder's required return reflects the return that a bondholder V to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the band's coupon rate, the bondholder's required return, the bond's par value, and its intrinsic value. These relationships can be summarized as follows: - When the bond's coupon rate is equal to the bondholder's required return, the bond's intrinsic value will equal its par value, and the bond will trade at par. - When the bond's coupon rate is greater than the bondholder's required return, the bond's intrinsic value will '7 its par value, and the bond will trade at a premium. 0 When the band's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par value, and the bond will trade at V . For example, assume Jackson wants to earn a return of 9.00% and is offered the opportunity to purchase a $1,000 par value bond that pays a 15.75% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the band's intrinsic value: A+A+A+A+A+A+B (1+C)1 (1+0)Z (1+C)3 (1+cr' (1+(:)5 (1+(:)'3 (l-l-CW Intrinsic Value = Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name Variable Value A V V B v $1,000 C Semiannual required return V Based on this equation and the data, it is Y to expect that Jackson's potential bond investment is currently exhibiting an intrinsic value greater than $1,000. Now, consider the situation in which Jackson wants to earn a return of 13.75%, but the bond being considered for purchase offers a coupon rate of 15.75%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the band's intrinsic value to the nearest whole dollar, then its intrinsic value of V (rounded to the nearest whole dollar) is V its par value, so that the bond is Y . Given your computation and conclusions, which of the following statements is true? C) When the coupon rate is greater than Jackson's required return, the bond's intrinsic value will be less than its par value. Q When the coupon rate is greater than Jackson's required return, the bond should trade at a premium. O A bond should trade at a par when the coupon rate is greater than Jackson's required return. Q When the coupon rate is greater than Jackson's required return, the bond should trade at a discount. 3. Bond yields Coupon payments are xed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? 0 The bond has an early redemption feature. 0 The bond will not be called. Consider the case of Demed Inc.: Demed Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,040.35. However, Demed Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Demed Inc.'s bonds? Value YTM { YTC 4 If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Demed Inc.'s bonds? 0 18 years 0 8years O 10 years 0 13 years If Demed Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par? '7