Question

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 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon-the coupon rate is in the column labelled 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 U.S. Treasury benchmark, expressed as a percentage. UST indicates which U.S. 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 The Blue Co.'s bonds EST Spread EST Volume (1000s) Maturity UST (Years) Company Coupon Last Price Last Yield 8.57% Vandelay Inc. 8.25% 01-01-2026 $97.87 2.37 10 59,725 Taggart Corp 5.80% 01-01-2021 $99.22 5.98% 0.58 52,930 Widget Corp 8.37% 8.98% 01-01-2026 $104.07 2.17 10 46,932 Waters Co 30 9.63% 01-01-2046 $88.14 10.98% 4.03 45,120 The Blue Co. 4.13% 01-01-2021 6.26% 0.86 43,960 $89.17 -year U.S. Treasury security, the yield will be equal to If you were to calculate the yield on a security $90.98 Which bond is trading at a premium? $92.86 The Blue Co. $87.46 un

Answer 1

1). To find the bond's price, we need to put the following values in the financial calculator:

N = 5*2 = 10;

I/Y = 6.26%/2 = 3.13%

PMT = (4.13%/2)*100 = 2.065;

FV = 100;

Press CPT, then PV, which gives us -90.98

So, Bond's Price = $90.98

Hence, 2nd Option is correct.

2). Relevant UST securities' maturity is 10 years, which is same as Vandelay and Widget.

So, Yield on 10-year UST Security = Vandelay's Yield - EST Spread

= 8.57% - 2.37% = 6.20%

Same can be found by using Widget's Yield and EST Spread.

Hence, 2nd Option is correct.

3). Bond trading at premium will have last price more than the par value of $100, which is Widget Corp.

Hence, 4th option is correct.