Theory
Are Treasury Notes and Bonds completely risk-free?
NO.
●Default risk-free
●Interest rate risk
●Illiquidity risk
What are bonds on which coupons are attached?
Bearer Bonds
Marks-Write Pen Company has an outstanding issue of convertible bonds with a P1,000 par value. These bonds are convertible into 50 shares of common stock. They have a 10 percent coupon and a 10-year maturity. The market price of the stock is P30/share. solve for the conversion value.
50 x 30/share
P1,500
T/F
The Philippine domestic bond market consists of short- and long-term bonds, mainly issued by the SEC.
False
National government
What bonds that are issued to finance specific projects that are pledged as collateral for the bond issue?
Suppose you can invest in taxable corporate bonds that are paying a 10 percent annual interest rate or municipal bonds. If your marginal tax rate is 28 percent, what is the after-tax or equivalent tax-exempt rate of return on the taxable bond?
.10 (1 - .28) =
.072 or 7.2%
T/F
STRIPS stands for Secured Trading of Registered Interest and Principal Securities
False
Separate
I spread stands for ________.
Interpolated spread
Assume a $1000 bond, 6.5% coupon (semi-annual) 15 years left to maturity. BBB credit rating & YTM of 7.2%. Rating dropped to BB. new discount rate = 8.5%
Compute the change in price in dollars.
936.43 - 832.21=
$104.22 decrease
T/F
Investment bank guarantees a firm price to the issuer, instead acts as a placing or distribution agent for a fee
False
does not guarantees
What are bonds collateralized with tangible non–real estate property?
Purchased P10,000 T-note on August 5, 2018.
Maturity Date: May 15, 2024
Settlement Date: August 7, 2018
Coupon rate: 5.875%
Quoted price: 103.143% of the face value
Last semi-annual payment: May 13, 2018 (85 days before settlement)
Next semi-annual payment: November 15, 2018 (101 days from settlement
Compute for the Accrued Interest
AI=(5.875/2)*(85/186)
AI = 1.3424%
the Z spread is the constant spread that is added to ___________.
A. the G spread curve
B. the benchmark spot curve
C. the benchmark yield curve
B.
the z spread is the constant spread that is added to each spot rate of a benchmark
What are bonds backed by full faith and credit of the issuer?
General Obligation Bonds
You have a principal strip maturing on November 15, 2023 has an asked price of 90.176% at close on July 16, 2018. (present value) Settlement occurs on July 19, 2018. STRIP will receive 100% of the face value at maturity.
From July 16, 2018 to November 15, 2023: 5.334 yrs
From July 19, 2018 to November 15, 2023: 5.326 yrs
If interest is compounded semi-annually, compute for the ASK YIELD (YTM) [up to 4 decimal places].
100% = 90.176 (1 + YTM/2)5.326*2
YTM = 1.9510%