Question

You hold a 25 year bond from Telus with a par value of $1,000 and a coupon rate of $70 (7%) a year. This bond is currently selling for $1,023. (No calculations are needed in this question).

(a). What do you know about the yield of this bond? Explain.

(b). If Telus incurred a large amount of debt what would likely happen to the:

i. coupon rate on your Telus bond - explain

ii. Yield to maturity on your Telus bond - explain

iii. Your Telus bond price - explain

(c). If the Government of Canada suddenly increased interest rates on their bonds what would happen to the:

i. coupon rate on your Telus bond - explain

ii. Yield to maturity on your Telus bond - explain

iii. Your Telus bond price - explain

Answer 1

FV	1000
Coupon payment	70
Period	25
PV	1023
Rate = YTM = Rate(25,70,-1023,1000)	6.81%
(b). If Telus incurred a large amount of debt what would likely happen to the:
i. coupon rate on your Telus bond -	Remain constant
ii. Yield to maturity on your Telus bond -	Credit risk also contributes to a bond's price.The company withb higher credit risk considered speculative and come with higher yields and lower prices
iii. Your Telus bond price - explain	a fall in the bond price will increase the yield.
(c). If the Government of Canada suddenly increased interest rates on their bonds what would happen to the:
i. coupon rate on your Telus bond -	Remain constant
ii. Yield to maturity on your Telus bond - explain	A rising interest rates cause bond prices to fall, and bond yields to rise.
iii. Your Telus bond price -	Demand for the bond would decline, and the yield would rise  and bond price would fall