【文章內(nèi)容簡介】 e stated yield to maturity, based on promised payments, equals %.[n = 10。 PV = –900。 FV = 1000。 PMT = 140]Based on expected reduced coupon payments of $70 annually, the expected yield to maturity is %.23. The bond is selling at par value. Its yield to maturity equals the coupon rate, 10%. If the firstyear coupon is reinvested at an interest rate of r percent, then total proceeds at the end of the second year will be: [$100 * (1 + r)] + $1,100Therefore, realized pound yield to maturity is a function of r, as shown in the following table:rTotal proceedsRealized YTM = – 18%$1,208– 1 = = %10%$1,210– 1 = = %12%$1,212– 1 = = %24. April 15 is midway through the semiannual coupon period. Therefore, the invoice price will be higher than the stated ask price by an amount equal to onehalf of the semiannual coupon. The ask price is percent of par, so the invoice price is:$1, + (189。 *$50) = $1,25. Factors that might make the ABC debt more attractive to investors, therefore justifying a lower coupon rate and yield to maturity, are:i. The ABC debt is a larger issue and therefore may sell with greater liquidity.ii. An option to extend the term from 10 years to 20 years is favorable if interest rates 10 years from now are lower than today’s interest rates. In contrast, if interest rates increase, the investor can present the bond for payment and reinvest the money for a higher return.iii. In the event of trouble, the ABC debt is a more senior claim. It has more underlying security in the form of a first claim against real property.iv. The call feature on the XYZ bonds makes the ABC bonds relatively more attractive since ABC bonds cannot be called from the investor.v. The XYZ bond has a sinking fund requiring XYZ to retire part of the issue each year. Since most sinking funds give the firm the option to retire this amount at the lower of par or market value, the sinking fund can be detrimental for bondholders.26. A. If an investor believes the firm’s credit prospects are poor in the near term and wishes to capitalize on this, the investor should buy a credit default swap. Although a short sale of a bond could acplish the same objective, liquidity is often greater in the swap market than it is in the underlying cash market. The investor could pick a swap with a maturity similar to the expected time horizon of the credit risk. By buying the swap, the investor would receive pensation if the bond experiences an increase in credit risk.27. a. When credit risk increases, credit default swaps increase in value because the protection they provide is more valuable. Credit default swaps do not provide protection against interest rate risk however. 28. a. An increase in the firm’s times interestearned ratio decreases the default risk of the firm224。increases the bond’s price 224。 decreases the YTM. b. An increase in the issuing firm’s debtequity ratio increases the default risk of the firm 224。 decreases the bond’s price 224。 increases YTM.c. An increase in the issuing firm’s quick ratio increases shortrun liquidity, 224。 implying a decrease in default risk of the firm 224。 increases the bond’s price 224。 decreases YTM.29. a. The floating rate note pays a coupon that adjusts to market levels. Therefore, it will not experience dramatic price changes as market yields fluctuate. The fixed rate note will therefore have a greater price range.b. Floating rate notes may not sell at par for any of several reasons:(i) The yield spread between oneyear Treasury bills and other money market instruments of parable maturity could be wider (or narrower. than when the bond was issued.(ii) The credit standing of the firm may have eroded (or improved. relative to Treasury securities, which have no credit risk. Therefore, the 2% premium would bee insufficient to sustain the issue at par.(iii) The coupon increases are implemented with a lag, ., once every year. During a period of changing interest rates, even this brief lag will be reflected in the price of the security.c. The risk of call is low. Because the bond will almost surely not sell for much above par value (given its adjustable coupon rate), it is unlikely that the bond will ever be called.d. The fixedrate note currently sells at only 88% of the call price, so that yield to maturity is greater than the coupon rate. Call risk is currently low, since yields would need to fall substantially for the firm to use its option to call the bond.e. The 9% coupon notes currently have a remaining maturity of 15 years and sell at a yield to maturity of %. This is the coupon r