essentials of investment 8th edition solution chapter 10

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1、Chapter10-BondPricesandYieldsCHAPTER10BONDPRICESANDYIELDS1.a.Catastrophebond.Typicallyissuedbyaninsurancecompany.Theyaresimilartoaninsurancepolicyinthattheinvestorreceivescouponsandparvalue,buttakesalossinpartoralloftheprincipalifamajorinsuranceclaimsisfiled

2、againsttheissuer.Thisisprovidedinexchangeforhigherthannormalcoupons.b.Eurobondsarebondsissuedinthecurrencyofonecountrybutsoldinothernationalmarkets.c.Zero-couponbondsarebondsthatpaynocoupons,butdopayaparvalueatmaturity.d.Samuraibond.Yen-denominatedbondssoldi

3、nJapanbynon-JapaneseissuersarecalledSamuraibonds.e.Junkbond.ThoseratedBBBorabove(S&P,Fitch)orBaaandabove(Moody’s)areconsideredinvestmentgradebonds,whilelower-ratedbondsareclassifiedasspeculativegradeorjunkbonds.f.Convertiblebond.Convertiblebondsmaybeexchange

4、d,atthebondholder’sdiscretion,foraspecifiednumberofsharesofstock.Convertiblebondholders“pay”forthisoptionbyacceptingalowercouponrateonthesecurity.g.Serialbond.Aserialbondisanissueinwhichthefirmsellsbondswithstaggeredmaturitydates.Asbondsmaturesequentially,th

5、eprincipalrepaymentburdenforthefirmisspreadovertimejustasitiswithasinkingfund.Serialbondsdonotincludecallprovisions.h.Equipmentobligationbond.Abondthatisissuedwithspecificequipmentpledgedascollateralagainstthebond.i.Originalissuediscountbondsarelesscommontha

6、ncouponbondsissuedatpar.Thesearebondsthatareissuedintentionallywithlowcouponratesthatcausethebondtosellatadiscountfromparvalue.j.Indexedbond.Indexedbondsmakepaymentsthataretiedtoageneralpriceindexorthepriceofaparticularcommodity.2.Callablebondsgivetheissuert

7、heoptiontoextendorretirethebondatthecalldate,whiletheextendableorputtablebondgivesthisoptiontothebondholder.3.a.YTMwilldropsincethecompanyhasmoremoneytopaytheinterestonitsbonds.b.YTMwillincreasessincethecompanyhasmoredebtandtherisktotheexistingbondholdersisn

8、owincreased.c.YTMwilldecrease.Sincethefirmhaseitherfewercurrentliabilitiesoranincreaseinvariouscurrentassets.10-15Chapter10-BondPricesandYieldsSemi-annualcoupon=1,000x.06x.5=$30.Onemonthofaccrue