Q5 Q4 Q2 ACTIVITY 77 Q3 Purpose: Q1 e EXAMINING THE BOND MARKET Understand why bonds sell at a premium, at par, or at a discount. Rating B+ CCC+ HIGH-YIELD BONDS Coupon Rate Name Allied Waste Trump AC *Yield is the lower of yield to maturity and yield to call. 10.00% 11.25% Refer to the information in the table above to answer the following questions. % coupon rate (also referred to as the stated rate or the face The Allied Waste bond has a rate) that determines the (cash interest payment / effective interest rate). An investor/creditor holding a $100,000 Allied Waste bond will receive $ in interest payments each year. Maturity Bid Price 8/2014 5/2011 cific Accounts 104.50 79.00 and returning a % yield. The Allied Waste bond is currently rated a B+ and returning a whereas the Trump AC bond is rated The CCC+ rating indicates (more / less) financial risk than a B+ rating. Therefore, to attract investors/creditors the Trump AC bond must offer a (higher / lower) rate of return (yield). Yield* 8.71% 21.13% % annual An investor/creditor purchasing the Allied Waste bond is expecting a(n) return. Assuming investments with the same amount of risk, an investor/creditor would prefer a (high / low) yield whereas the issuing corporation would prefer a (high / low) yield. A $100,000 Trump AC bond would sell for $___ (premium/ par / discount). The amount paid by the issuing corporation at maturity is referred to as the face value, the par value, and the maturity value. Bond bid (selling) price is quoted as a percentage of par. S % yield, For example, the Bid Price of the Allied Waste bond is 104.50. This indicates an investor/creditor could purchase or sell a $100,000 Allied Waste bond for $104,500. ($100,000 x 104.50%). This bond is selling at a (premium / par / discount). ouzal) Page 203 (239226 16301 (no molts The Allied Waste bond is selling at a premium because the coupon rate (stated rate, face rate) is (greater than / less than) the yield (market rate, effective rate) for this investment. To achieve the (higher / lower) yield, the investor/creditor pays the issuing corporation an additional amount (premium) at the beginning of the investment. sits on eve Bian. This bond is selling at a Morotsb The Trump AC bond is selling at a discount because the coupon rate (stated rate, face rate) is (greater than / less than) the yield (market rate, effective rate) for this investment. To achieve the (higher/ lower) yield, the initial investment of the investor/creditor is less than face value (discount) and at maturity the higher face value is received. 5 Would you prefer to invest in the Allied Waste or the Trump AC bond? Why? ant Chapter 6

Understand why bonds seli at a premain, at par, or at a discount. Nefer to the information in the fable above to onswer the following questions. ai The Allied Waste bond has a \% coupon rate faho referred to as the stated rate or the face rate) that determines the (cash interest payment / effective intereat rate). An irvestor/credito holding a $100,000 Allied Waste bond will recelves in interest payments each wear. Q2. The Allied Waste bond is currently rated a Bt and returning a whereas the Trump AC bond is rated Sis yield, The ccCt rating indicates (more f less) and returning a \% vield. The Ccct rating indicates (more f less) financial risk than a B+ rating. Therefore, to attract. imestors/creditors the Trump AC bond must offer a (higher / lower) rate of refum (yield). Q3 An investor/creditor purchasing the Allied Waste bond is expecting a(n) % annual return. Assuming investments with the same amount of risk, an investor/creditor would prefer a (high / low) vield whereas the issuing corporation would prefer a (high / low) vield. Q4 The amount paid by the issuing corporation at maturity is referred to as the face value, the par value, and the maturity value. Bond bid (selling) price is quoted as a percentage of par, For example, the Bid Price of the Allied Waste bond is 10450. This indicates an investor/creditor could purchase or sell a $100,000 Allied Waste bond for $104,500,($100,000104,50%). This bond is selling at a (premium / par/discount). A $100,000 Trump AC bond would sell for $ (premium / par/discount). - This bond is selling at a The Allied Waste bond is selling at a premium because the coupon rate (stated rate, face rate) is (greater than / less than) the yieid (market rate, effective rate) for this investment. To achieve the (higher / lower) yield, the investor/creditor pays the issuing corporation an additional amount (premium) at the beginning of the investment. The Trump AC bond is selling at a discount because the coupon rate (stated rate, face rate) is (greater than / less than) the yield (market rate, effective rate) for this investment. To achieve the (higher / lower) yield, the initial investment of the investor/creditor is less than face value (discount) and at maturity the higher face value is received. Would you prefer to invest in the Allied Waste or the Trump AC bond? Why