Question
In: Finance
Suppose on 09/18/2020 you observe the following quote for corporate bonds of Home Depot. Assume that...
Suppose on 09/18/2020 you observe the following quote for corporate bonds of Home Depot. Assume that the bonds make semi-annual payments.
- Find YTM for the bonds. Use Excel, state your result and Excel function inputs
Issue Price Coupon(%) Maturity
Home Depot Inc 93.51 5.875 16-Dec-36
- What can be said about expected rate of investment return on the Home Depot bonds if they are AA-rated?
- What would be your answer to question b) if you learn that the rating of the bonds is BBB?
Solutions
Expert Solution
a]
YTM is calculated using YIELD function in Excel :
settlement = date today
maturity = date of maturity
rate = coupon rate
pr = price of bond (per $100 of par value)
redemption = redemption price of bond (per $100 of par value). This is $100, as the bond is redeemable at par.
frequency = number of coupon payments per year. This is 2, as it is a semiannual coupon bond.
YIELD is calculated to be 6.53%.
b]
The expected rate of return seems very high because the yield of 6.53% is relatively high for a AA rated bond
c]
If the rating of the bonds is BBB, the yield seems fair relative to the yields for similar BBB rated bonds.
jeff jeffy answered 2 years agoRelated Solutions
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