Question

EE Aole Google Wipedis Facebook- Twitter Oracle HRCM Sott Sign-in We corie, Elikbourd Leam Cengage McGraw Hill CENGAGE MINDTAP Take Home Problem #3-Bonds and Their Valuation Proctor & Gamble (NYSE PG) Issue Details Callable Yes Coupon Frequency Semiannually Proctor and Gamble's total amount of debt increased from 31.9% in March 2011 to 34.2% in December 2011, mainly due to its net debt issuances to fund general corporate purposes Issue Size ($Mil) $1,000 Coupon 0.700% Maturity Date 08/15/2014 Coupon Type Fixed What was the annual cost of the funds to P&G raised from the $1.0 biltion bonds that mature in 20147 basis points. Historical Treasury Raters If the bond sold at 100.10 at the time of issue, investors observed that required annual yield would be 2 Year Nominal Difference Looking at the comparable U.S. Treasury yield, these bonds were issued at a spread of basis points. Because the coupon rate is the yield required by the market, the bond sold at at the time of issue. Aug Time Period Source: U.S. Depertment of Treasury, cited on Mormingstar.com chtto://quicktake.morningster.com/StockNet/bonds.aspk75ymbol PG&Country USA> MacBook Air ng.cengage.com Apole Google racebook, Twitter Oracle HRC.Sott Sign-in wikgeda welcorne, CIL kboard Leam Cengage McGraw-Hi.İMy Co k :-CENGAGE I MINDTAP Take Home Problem #3-Bonds and Their Valuation If the new observed yield of the bond is 1.2%, the bond is likely to be trading at a price of [ Round your answer to two decimal places.) (Note: If the current yieid is higher than the coupon rate, investors would want a higher return on their investment. If the coupon rate is less than the yield required by the market, the price of the bond is most likely to be the par value of the bond, and the bond will sell at As interest rates increase, the yield required by the market will increase, and the price of the bond is likely to Thus, when the yield increases to 1.2%, the bond's price ). (Note: by Round your answer to two decimal places.) Understanding yield to call and when bonds are called Suppose the bond had a call structure that allowed the company to call its bonds after one year. The call structure of the bonds states that the bonds would be callable at par What would be the yield to call? In what situation would the company call the bond? O When current yield on the bonds falls 2.197% 1.487% o 0.765% 1.448% when interest rates fall O When interest rates rise O When the bond's price rises From an investor's perspective, if the investor holds these P&G bonds in their portfolio and market interest rates rise, the bonds' value in the fixed-income asset class in the portfolio will most likely : but if market interest rates fall, the value of bonds in the partfolia will MacBook Air

Answer 1

ANSWER OF 1.

If debt increased by 1 billion than cost would be

as per the chat we can say that with the passage of five years at the time of maturity interest rate increases from 0.19 to 0.79% it means increase of 60 basis points and market Value of bond at the time of maturity would be 96.57$

ANSWER OF 2

IF BOND WOULD SOLD ON ISSUE DATE WITH 100.10 THAN ANNUAL RATE WOULD BE COMPOUNDING 2 TIMES ANNUALLY WITH THE EFFECTIVE RATE OF 0.701%