Yield to maturity in year 0 13% Obligation of $2,658.44 to be
Question:
Yield to maturity in year 0 | 13% |
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Obligation of $2,658.44 to be paid out in 8 years |
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| Bond 1 | Bond 2 | Bond 3 |
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Coupon rate | 12.0% | 13.6% | 15.5% |
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Maturity | 9 | 11 | 25 |
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Face value | 1,000 | 1,000 | 1,000 |
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Bond price |
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Face value equal to $1,000 of market value |
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Duration |
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Yield to maturity in year 8 | 13% |
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| Bond 1 | Bond 2 | Bond 3 |
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Bond price (in year 8), assume YTM=13% |
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Value of Reinvested coupons (in year 8) |
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Total |
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Multiply by percent of face value bought |
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Product (Terminal Value) |
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(c.) Would all three bonds be able to fund the obligation if YTM falls to 9% in year 8. Explain your answer (5 pts) |
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) Create data table that shows how the bond value for bond 1, 2 and 3 would change with YTM in year 8 |
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| Bond 1 | Bond 2 | Bond 3 |
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| 3% |
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| 4% |
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| 5% |
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| 6% |
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| 7% |
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| YTM (yr8) | 8% |
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| 9% |
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(e) Assume year 8 YTM could be different from 13%. |
| 10% |
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Which bond is best suited to meet the obligation? |
| 11% |
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Explain (5 pts) |
| 12% |
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| 13% |
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| 14% |
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| 15% |
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| 16% |
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| 17% |
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| 18% |
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| 19% |
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| 20% |
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Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill