Question

Please answer all parts.

1. You bought a $1,000 par Dominion Company bond on March 1. The bond pays a coupon rate of 4%/year semiannually on November 1 and May 1. How much accrued interest did you pay? 2. Morgan Stanley manages a well-diversified, speculative grade bond portfolio which is expected to have an annual default rate of 4.2% and loss given default of 60%. What is the portfolio's expected loss over the next 12 months? (Your answer should be a % carried to 2 places.) 3. If the portfolio described in # 2 has a contractual coupon rate of 6.2 % /year, what is its expected annual yield? (Your answer should be a % carried to 2 places.) 4. You bought a $1,000 par Albany NY 20-year bond with equal annual amortization. a. How much principal will you receive each year? b. If the coupon rate is 2,8% / year, how much interest will you receive in year 1 and year 2? 5. Answer the following questions and label your answers 5a and Sb: bond provides a valuable option to the issuer of the bond (the a. A borrower) b. А bond provides a valuable option to the bondholder (the investor). 6. You bought a $1,000 par IBM callable bond in September 2019 that is callable at 103 in 2023, 102 in 2024, 101 in 2025 and at par thereafter. It has a coupon rate of 3.0% /year. Excluding interest, how much would you receive if IBM called the bond in: a. 2023 b. 2024 с. 2025 d. 2026 e. When is IBM likely to call the bond? 7. You bought a convertible bond issued by HiTech Corp which has a conversion ratio of 50 common shares for each $1,000 bond. a. At what stock price per share would you make a profit (*in the money") if you bought the bond at par? b. What would you expect the bond to sell for in the market if the stock trades at $28 per share?

Answer 1

1 Accrued Interest = Bond Face Value*Interest rate*No.of Months/12 1000*4%*2/12 $ 6.67