Bond Basics
What is the face value of all three bonds in the story?
¥1,000
What is Bond A’s coupon payment per year?
¥50
What is Bond B’s coupon rate?
3.8%
What is Bond C’s coupon rate?
6%
Which bond has the highest credit rating?
Bond B (AAA)
Define a coupon rate in simple terms.
The percentage of the bond’s face value paid as yearly interest.
Bond A sells for ¥920. Is it a premium or discount bond?
Discount bond.
What is Bond B’s credit rating?
AAA
What is the annual coupon payment on Bond C?
¥60
Which bond has the lowest credit rating?
Bond C (A–)
What is a “discount bond”?
A bond priced below its face value.
Calculate Bond A’s current yield. (50 ÷ 920)
5.43%
Calculate Bond B’s current yield: 38 ÷ 1030
3.69%
Bond C price is ¥1,080. What does that mean?
It’s a premium bond.
Which bond has the best real return if inflation is 4.7%?
Bond C (6% – 4.7% = 1.3%)
What happens to bond prices when interest rates increase?
Bond prices fall.
What is Bond A’s maturity?
10 years
Why does Bond B lose to inflation at 4.7%?
Coupon 3.8% < inflation → negative real return.
Calculate Bond C’s current yield: 60 ÷ 1080
5.55%
Which bond is least affected when interest rates rise?
Bond C → shortest maturity (5 years)
What is the formula for current yield?
Current Yield = Annual Coupon ÷ Market Price
Why does Bond A have higher interest rate risk?
Long maturity → more sensitive to rate changes.
Why is Bond B called a “premium bond”?
It trades above face value (¥1,030 > ¥1,000).
Why did Bond C become more risky in the story?
The stadium company had a 25% drop in ticket sales → weaker ability to repay.
Why did Jian’s group choose Bond A in the end? Give two reasons.
Strong AA+ rating, discount price (¥920), stable government issuer, beats inflation, long-term metro project.