Question

10. Bond listings and yield spreads The following bond list is from the business section of a financial newspaper on January 1, 2016. Assume that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon and the coupon rate is in the column labeled Coupon. The Last Price and Last Yield columns indicate each bond's price and YTM at the end of trading. EST Spread indicates the bond's spread above the relevant US Treasury benchmark, expressed as a percentage. UST indicates which US Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Notice also that prices are stated relative to a par value of $100. Assume all bonds have the same default premium. Fill in the value of Kumatsu Co.'s bonds. Company Vandelay Inc. Niagular Corp. Acme Inc. Ziff Corp. Kumatsu Co. Coupon 8.25% 5.80% 8.98% 9.63% 4.13% Maturity 01-01-2026 01-01-2021 01-01-2026 01-01-2046 01-01-2021 Last Price $97.87 $99.22 $104.07 $88.14 Last Yield 8.57% 5.98% 8.37% 10.98% EST Spread 2.37% 0.58% 2.17% UST (Years) EST Volume (1000s) 59,725 52,930 46,932 45,120 4.03% 6.26% 0.86% 43,960 If you were to calculate the yield on a security with a 10-year US Treasury security, the yield will be equal to Which bond is trading at a premium? O Vandelay Inc. Okumatsu Co. Ziff Corp. O Acme Inc.

Answer 1

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- 2x AL 234 238 BOND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri -11AA = = = Dr Wrap Text General E Copy Fill Paste B I U B- E A E E s FMerce Merge & Center - Center $ -% % 4.0 .00 . Format Painter Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing AM232 AH - AK AL AM AN AO AP AQ AR 232 PRICE OF KOMATSU CO 233 COUPON 4.13% SEMI ANNUAL YTM 6.26% 235 YEARS 5 236 PERIODS 237 FACE VALUE 100 COUPON ($) 4.13 ANNUAL 239 ANS 1 LAST PRICE $ 90.98 EXCEL =PV(AJ234/AJ236,A3235*AJ236,-AJ238/AJ236,-AJ237) 240 241 ANS 2 10 YEAR YIELD ON US TREASURY = 6.2% 242 SEE THE TABLE GIVEN IN SUM, SEE THE LAST COLUMN 243 WE HAVE 2 COMPANIES WITH 10 YEARS MATURITY 244 VANDELAY INC YTM = 8.57% EST SPREAD = 2.37% SO BENCHMARK BOND YIELD = 8.57% -2.37%=6.2% 245 ACME INC YTM = 8.37% EST SPREAD = 2.17% SO BENCHMARK BOND YIELD = 8.37% -2.17% =6.2% 246 247 WE TOOK SECOND COMPANY TO VERIFY THAT WE ARE CORRECT 248 249 ANS 3 BOND TRADING AT PREMIUM : ACME INC. (PRICE HIGHER THAN PAR VALUE) 250 HEM YIELD SPOT Sheet2 AFN BANKING NOTE 51 53 CLEAN PRICE $10 BIDDING, UNDERWRITING EUAC AW LIFELP, IP, MRP, INFLATION WARRANT refund 54 55 56 0 Rea ferences |00130% .WE * 0 0 ENG 1221 30-10-2019