The government has five bonds in issue .Each has a par value of $100,pays coupon interest...

The government has five bonds in issue .Each has a par value of $100,pays coupon interest annually and is redeemable at its par value at the end of the stated maturity term. The table below summaries the relevant information about each of the five government The following additional information is available in respect of each bond:

Bond	Maturity term	Annual coupon Rate	price
Bond P	Year 1	3.40%	$101.55
Bond Q	Year 2	3.80%	$100.85
Bond R	Year 3	4.25%	$99.25
Bond S	Year 4	4.55%	$96.25
Bond T	Year 5	5.15%	$95.50

GHI Plc is a stock exchange listed company. The company has in issue Bond X that has a coupon rate of 7% and is redeemable at its par value of $100 in four years’ time. Coupon interest on Bond X is paid annually.

GHI Plc has now announced the issue of bond A which is a five year Bond. Bond A has a par value of $100 and will be redeemed at this par value in five years’ time from the issue date. The bond will pay annual coupon interest at the rate of 6.5%.As a result of this this bond issue, the credit rating of the company will drop from the current credit rating of A to the credit rating of BBB

The following tables showing the credit spreads, in basis point are available from the credit rating agency. They are applicable to the industry sector in which GHP Plc operates

Credit spreads in basis points

Credit Rating	Year 1	Year 2	Year 3	Year 4	Year 5
A	10	23	35	48	52
BBB	26	39	53	62	70
B	42	60	72	85	98

Required

Calculate the government bond annual spot rate for years from 1 to 5 by bootstrapping the above coupon paying government bonds and state the shape of the resulting government bond yield curve.
Identify and explain four(4) possible reasons why the credit rating agency has decreased GHI plc credit rating from A to BBB
Calculate the percentage change in the price of GHI plc bonds arising from the decrease in the company credit rating from A to BBB and briefly explain why the bonds prices are likely to change in that way.
Calculate the issue price of GHI plc’s proposed Bond A
Calculate the yield to maturity of GHI Plc’s proposed Bond A and comment on your result.

Expert Solution

jeff jeffy answered 1 year ago

e. Your company has an issue of $100 par value annual coupon bonds with 8 years...

e. Your company has an issue of $100 par value annual coupon bonds with 8 years remaining until maturity. The annual coupon rate is 4.10%, along with the current price $92.00 of the bonds. What is the yield to maturity on the bonds?

Simplified Systems has an outstanding issue of $1000-par-value bonds with a 12% coupon interest rate. The...

Simplified Systems has an outstanding issue of $1000-par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date. If bonds of similar risk are currently earning a 10% rate of return, how much should the Simplified Systems bond sell for today? Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Simplified Systems bond. If the required return were...

29. A coupon bond that pays interest annually has a par value of $1,000, matures in...

29. A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ______ if the coupon rate is 7%. A) $712.99 B) $620.92 C) $1,123.01 D) $886.28 E) $1,000.00 30. A coupon bond that pays interest annually, has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic...

A coupon bond that pays interest of $60 annually has a par value of $1,000, matures...

A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at a $75.25 premium from par value. The current yield on this bond is _________.

A callable bond pays annual interest of $5, has a par value of$100, matures in...

A callable bond pays annual interest of $5, has a par value of $100, matures in 10 years but is callable in 4 years at a price of $110, and has a value today of $106. Calculate the yield to call.Group of answer choices5.18%5.27%5.39%5.58%

A callable bond pays annual interest of $5, has a par value of $100, matures in...

A callable bond pays annual interest of $5, has a par value of $100, matures in 10 years but is callable in 5 years at a price of $110, and has a value today of $106. Calculate the yield to call. 5.18% 5.27% 5.39% 5.58%

The table below provides details on three government bonds (annual coupon payment, par value = $100)...

The table below provides details on three government bonds (annual coupon payment, par value = $100) Term to maturity (years) Coupon rate (% pa) Yield-to-maturity (% pa) 1 9.6 8.52 2 6.0 8.87 3 10.0 8.98 Another 3-year government bond paying a coupon rate of 1% pa (annual coupon payment, par value = $100). Is the yield of this bond equal to 9%? Why or why not? justify with calculation. All these bonds are issued by the same government.

A $1000 par value bonds pays an 8% APR coupon semiannually. If the bond has 10...

A $1000 par value bonds pays an 8% APR coupon semiannually. If the bond has 10 years to maturity and a YTM of 10%, what is its after-tax current yield for an investor paying 25% taxes? Answer: D. 6.9% Please explain how to find this by hand without using Excel.

Three government bons are in issue, bonds A, B and C each bond has a par...

Three government bons are in issue, bonds A, B and C each bond has a par value of K100 and is redeemable at the par value. The following additional information ia available in respect of each bond. Bond Maturity term Annual coupon rate Price Bond A 1 year 3.5% K99.90 Bond B 2 years 3.75% K98.75 Bond C 3 Years 3.80 % K97.80 a) by bootstrapping the above coupon paying bonds, estimate the one year , two year and three...

There is a bond that pays $100 per year interest, with a $1,000 par value. It...

There is a bond that pays $100 per year interest, with a $1,000 par value. It matures in 15 years. The market required yield to maturity on a comparable bond is 12%. What is the value of the bond? How does the value change if the yield to maturity on a comparable bond increase to 15%? What if it decreases to 8%. Explain the above questions (part b) with the concepts of interest rate risk, premium bonds and discount bonds....

Question