Question

10. Bond listings and yield spreads

The following bond list is from the business section of a newspaper on January 1, 2016. Notice 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, given 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. Prices are stated relative to a par value of $100.

Fill in the nominal YTM for Pickman Inc.’s bonds. (Note: Do not round your intermediate calculations.)

Company	Coupon	Maturity	Last Price	Last Yield	EST Spread	UST (Years)	EST Volume (1000s)
Schubert Inc.	8.13%	01-01-2026	$82.25	11.11%	6.20%	10	72,070
Chapman Inc.	9.63%	01-01-2046	$95.09	10.15%	7.15%	30	65,275
Rust Inc.	4.50%	01-01-2021	$95.18	5.62%	1.37%	5	59,277
Murphy & Co.	5.38%	01-01-2021	$101.02	5.14%	0.89%	5	57,465
Pickman Inc.	7.75%	01-01-2026	$94.61		3.65%	10	56,305

If Chapman Inc. wants to issue new 30-year bonds today, what coupon rate would the bonds have to pay to be issued at par?

10.15%

11.65%

12.05%

12.58%

Which bond is trading at a premium?

Chapman Inc.

Pickman Inc.

Murphy & Co.

Schubert Inc.

Answer 1

When yield to maturity and coupon rate are equal, bond will sell at par. So bond yield with equal maturity period will be the coupon rate.

Hence, correct options are 10.15% and “Murphy & Co.”

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