BUSINESS FINANCE教学资料 Chapter 6_Solutions.docxVIP

Chapter 6: Bond valuationBond Prices [LO2]?Staind plc has 8.5 per cent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments. The par value of the bond is ￡1000. If the YTM on these bonds is 9.75 per cent, what is the current bond price?Answer: The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this problem assumes an annual coupon. The price of the bond will be:P = ￡85({1 – [1/(1 + .0975)]10 } / 0.0975) + ￡1,000[1 / (1 + 0.0975)10] = ￡922.36Nominal and Real Returns [LO4]?An investment offers a 15 per cent total return over the coming year. You think the total real return on this investment will be only 9 per cent. What do you believe the inflation rate will be over the next year?Answer: The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is:(1 + R) = (1 + r)(1 + h)h = [(1 + 0.15) / (1 + 0.09)] – 1 = 0.0550 or 5.50%Interest Rate Risk [LO2]?Bond J is a 4 per cent coupon bond. Bond K is a 12 per cent coupon bond. Both bonds have nine years to maturity, make semi-annual payments, and have a YTM of 8 per cent. The par value of the bonds is 1,000. If interest rates suddenly rise by 2 per cent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 per cent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?Answer: Initially, at a YTM of 8 percent, the prices of the two bonds are:PJ= 20(PVIFA4%,18) + 1,000(PVIF4%,18) = 746.81PK= 60(PVIFA4%,18) + 1,000(PVIF4%,18) = 1,253.19If the YTM rises from 8 percent to 10 percent:PJ= 20(PVIFA5%,18) + 1,000(PVIF5%,18) = 649.31PK= 60(PVIFA5%,18) + 1,000(PVIF5%,18) = 1,116.90The percentage change in price is calculated as:Percentage change in price = (New price – Original price) / Original price PJ% = (649.31 – 746.81) / 746.81 = – 13.06%PK%= (1,116.90 – 1,253.19) / 1,253.19 = – 10.88%If the YTM declines from 8 per